MGM Resorts International (NYSE:MGM), unlike other casino operators, derives a significant proportion of its revenues from non-gaming operations particularly hotels. It is the only resort in Las Vegas, which enjoys a strong presence on the strip.
We have a Trefis price estimate of $11.10 for MGM, which is at a premium to the current market price.
Higher proportion of non gaming revenues in revenue mix
MGM Resorts’ dependence on gaming revenues is lower comparatively compared to its competitors. According to our estimates, non-gaming revenues contribute approximately 59% to its stock valuation. In non-gaming revenues, a significant portion is contributed by its hotel operations which stands at about 31% and is significantly higher as compared to other prominent gaming companies like Wynn Resorts (NASDAQ:WYNN) with 13% share. Other ancillary operations including Food & Beverage, Entertainment and Retail contribute the remaining 28% to MGM’s valuation.
However, non gaming revenues tend to get affected by the growth of gaming revenues as the majority of gaming customers utilize non gaming/ancillary services offered at resorts. However, we believe that MGM’s non-gaming services do attract a large number of convention or show attendees and general tourists apart from gaming tourists.
Wide presence on the Las Vegas Strip
MGM operates nine resorts and one joint venture (CityCenter) on the Las Vegas Strip, which in turn, provides it excess capacity in terms of number of games offered and room capacity. The Las Vegas region attracts tourists from all walks of life including leisure travel customers, premium gaming customers, convention customers and general tourists.
MGM’s vast presence on the strip allows it to cater to different customer segments.
- Bellagio, MGM Grand Las Vegas, Mandalay Bay and The Mirage target the upper end of each market segment.
- New York-New York, Luxor and Monte Carlo are aimed at attracting middle to upper middle-income customers, largely from the leisure travel segment.
- Its other two resorts, Excalibur and Circus Circus Las Vegas, appeal to the middle-income visitor segment. 
With signs of a recovery in the Las Vegas gaming industry, we believe MGM Resorts would be a front runner due to its wider presence across the strip.Notes:
- Source: Annual Report, 2011 [↩]