MGM Resorts (NYSE:MGM) International, a global leader in the hospitality and entertainment industry, has been navigating a complex landscape of opportunities and challenges. As the company continues to expand its reach both domestically and internationally, investors and analysts are closely watching its performance across various segments, including its core Las Vegas operations, regional U.S. markets, Macau presence, and growing digital betting platform.
Company Overview
MGM Resorts International operates a diverse portfolio of properties, including casinos, hotels, and conference spaces. The company's primary focus areas are Las Vegas, regional U.S. markets, and Macau. In recent years, MGM has also made significant strides in the online gaming and sports betting sector through its BetMGM platform, a joint venture that has been gaining traction in the competitive digital space.
Financial Performance
The company's financial results for the third quarter of 2024 presented a mixed picture. MGM reported EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring or Rent Costs) of $1,136 million, which fell slightly short of consensus expectations. This miss was partially offset by insurance claims related to a cyberattack that occurred in 2023.
Las Vegas, the company's core market, showed resilience with a 1% increase in revenue for the quarter. Hotel revenue grew by 7% year-over-year, while food and beverage revenue increased by 6%. However, casino revenue in Las Vegas declined by 13%, primarily due to challenging comparisons from the previous year's VIP business performance.
The regional markets experienced some headwinds, with EBITDAR missing consensus by 4%. Macau operations also faced challenges, with a significant margin miss reported by analysts.
Strategic Initiatives
MGM Resorts is actively pursuing several strategic initiatives to drive growth and improve profitability. The company has identified areas for improvement both domestically and internationally, including potential projects in Brazil and enhancements to its Las Vegas operations.
BetMGM, the company's online gaming and sports betting platform, has shown promising signs of growth. In the third quarter of 2024, BetMGM reported a profit, although analysts expect it to incur losses in upcoming quarters as it remains in an investment phase. The platform has been gaining market share in both iGaming and sports betting sectors, with gross gaming margins improving by 82 basis points quarter-over-quarter.
Market Position
MGM Resorts maintains a strong position in the Las Vegas market, which remains a key driver of the company's performance. The shift towards a higher-margin, upscale clientele in Las Vegas over the past decade has contributed to the company's resilience in this competitive market.
In Macau, MGM has been working to strengthen its presence, although recent performance has been mixed. The company's regional U.S. operations continue to face a challenging environment, with analysts noting a slight slowdown in total enterprise revenue growth.
Future Outlook
Analysts project MGM's revenue and cost initiatives will support Las Vegas EBITDAR margins at around 35% for 2025. The company's investment across its enterprise is expected to result in an uptick in EBITDAR growth in 2026, with some analysts forecasting a 7% increase.
The balance sheet remains strong, with a solid liquidity base of $4.8 billion. MGM's aggressive share repurchase program post-pandemic has been viewed positively by analysts, who expect the company to maintain an attractive leverage profile despite ongoing capital expenditures.
Looking ahead, MGM has multiple opportunities for growth, including potential gaming licenses in New York, Thailand, and the UAE. The company's U.S. portfolio is currently trading at less than 5x EBITDA, which some analysts consider a discount compared to U.S. gaming peers, suggesting potential for value appreciation.
Bear Case
How might increased competition impact MGM's market share?
MGM Resorts faces intense competition in all its markets, particularly in Las Vegas and the online gaming space. In Las Vegas, the company is contending with both established rivals and new entrants looking to capture market share. The recent softness in F1 bookings for Q4 2024 highlights the volatility of the market and the potential for events or competitors to impact MGM's performance.
In the digital realm, BetMGM is operating in an increasingly crowded field. While the platform has shown market share gains, maintaining this momentum will be challenging as competitors invest heavily in customer acquisition and product development. The expected losses for BetMGM in upcoming quarters underscore the ongoing investment required to compete effectively in this space.
What risks does MGM face from potential economic downturns?
The gaming and hospitality industries are particularly sensitive to economic cycles. A potential economic downturn could significantly impact MGM's revenue across all segments. In Las Vegas, a reduction in consumer discretionary spending could lead to decreased visitation and lower gaming revenues. The regional markets, which have already shown some weakness, could be further impacted by local economic conditions.
Moreover, MGM's expansion plans and capital-intensive projects could become burdensome if economic conditions deteriorate. The company's ability to maintain its aggressive share repurchase program and planned investments might be compromised in a prolonged economic downturn, potentially affecting investor confidence and stock performance.
Bull Case
How could MGM's international expansion drive growth?
MGM's international expansion strategy presents significant growth opportunities. The company is actively pursuing new markets, with potential gaming licenses in New York, Thailand, and the UAE on the horizon. These new ventures could provide substantial revenue streams and diversify the company's geographic footprint, reducing its reliance on existing markets.
The Macau operation, despite recent challenges, remains a key area for potential growth. As the region continues to recover from pandemic-related disruptions, MGM is well-positioned to capitalize on the resurgence of tourism and gaming activity. The company's investments in enhancing its Macau properties could yield strong returns as the market fully rebounds.
What potential does BetMGM have for future profitability?
BetMGM has shown promising signs of growth and market share gains in the competitive online gaming and sports betting market. The platform's ability to turn a profit in the recent quarter, albeit temporarily, demonstrates its potential for long-term profitability. As the online gaming market matures and BetMGM optimizes its operations, there is significant potential for improved margins and sustained profitability.
The company's investments in product development and marketing for BetMGM are expected to drive customer acquisition and retention. As the platform scales and achieves better operational efficiency, it could become a major contributor to MGM's overall profitability. The growing acceptance of online gaming across the United States also presents opportunities for BetMGM to expand into new states, further driving growth and market share.
SWOT Analysis
Strengths:
- Strong presence in Las Vegas with a focus on high-margin, upscale clientele
- Diversified portfolio across multiple markets and segments
- Solid liquidity position and strong balance sheet
- Growing market share in online gaming through BetMGM
Weaknesses:
- Volatility in casino revenues, particularly in Las Vegas VIP business
- Challenges in regional markets with underperforming EBITDAR
- BetMGM profitability concerns in the short term
- Margin pressures in Macau operations
Opportunities:
- Potential new gaming licenses in international markets (New York, Thailand, UAE)
- Expansion of online gaming and sports betting operations
- Growth in convention business in Las Vegas
- Continued recovery and expansion in Macau market
Threats:
- Intense competition in both traditional and online gaming markets
- Regulatory changes affecting gaming operations
- Economic downturns impacting consumer discretionary spending
- Potential for increased operational costs due to inflationary pressures
Analysts Targets
- JMP Securities (October 31st, 2024): $54.00, Market Outperform
- Barclays (LON:BARC) (October 31st, 2024): $50.00, Overweight
- JMP Securities (October 18th, 2024): $56.00, Market Outperform
- Barclays (August 1st, 2024): $56.00, Overweight
- JMP Securities (August 1st, 2024): $57.00, Market Outperform
- BTIG (July 2nd, 2024): $52.00, Buy
MGM Resorts International continues to navigate a complex and evolving landscape in the global gaming and hospitality industry. While facing challenges in certain segments, the company's strong market position, strategic initiatives, and potential for international expansion provide a foundation for future growth. Investors and analysts will be closely monitoring MGM's ability to execute its strategies and capitalize on emerging opportunities in both traditional and digital gaming markets.
This analysis is based on information available up to November 5, 2024, and reflects the views and projections of various financial analysts and institutions as of that date.
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