MGM Resorts (NYSE:MGM) recently reported its Q4 2013 earnings. The net revenues increased by 10% to $2.51 billion and EBITDA (earnings before interest, taxes, depreciation and amortization) jumped 21% to $610 million driven by the continued growth in Macau. The net loss in the fourth quarter amounted to $38.3 million as compared to a loss of $1.2 billion in the prior year period.  While MGM is positioned to benefit from its vast portfolio of assets in the U.S., due to increasing consumer spending, gambling in Macau will continue to drive the growth for the company in the coming years, in our view.
MGM continues to expand in the U.S. as well as internationally. The company’s new Strip frontage at New York and Monte Carlo will be completed in the first half of this year. The company was found suitable to operate in Massachusetts by the state’s gaming regulators and is awaiting a decision on licensing for a casino property in Springfield. It is also building a new resort in Cotai, which will be operational by early 2016. MGM said there will an increase in the project cost from $2.6 billion to around $2.9 billion, given rising costs and certain upgrades planned for key consumer experiences there. 
Going forward, the company will see a great first quarter into 2014 due to the ConExpo-Con/Agg show. The company expects its convention mix in the first quarter to be approximately 22%, which is near peak levels for any first quarter prior. This will likely lead to around 10% growth in REVPAR (revenue per available room). 
We currently have $20 price estimate for MGM Resorts, which we will soon update based on the fourth quarter earnings announcement.
MGM Benefits From Macau’s Impressive Run
MGM witnessed solid growth in Macau as overall gambling continued to surge in the region. Betting in Macau soared 24% in the fourth quarter to $12.5 billion and 19% to $45 billion for the full year 2013.  The growth was driven by higher visitation and betting. Around 28 million people visited Macau through November 2013, a 5% increase from the prior year period. 
MGM’s Macau revenues jumped 27% to $926 million and EBITDA surged 36% to $238 million in the fourth quarter, as compared to the prior year period. While VIP table games turnover increased 32%, the hold percentage declined slightly to 2.8% as compared to 2.9% in the prior year quarter.  We continue to believe in Macau’s growth story as there is a very small percentage of population visiting Macau currently, and as the economy grows and the number of HNIs (high net worth individuals) increases, more and more people will visit the gambling capital. MGM also will benefit from its enhanced capacity in the new resort in Cotai, which will host 1,600 hotel rooms, 500 gaming tables and 2,500 slot machines.
U.S. Operations Shows Steady Growth
MGM’s U.S. operations continue to show steady growth. Casino revenues decreased 2% due to decline in table games hold percentage to 20.2%, compared to 21.9% for the prior year quarter.  However, it must be noted that MGM derives majority of its revenues from non-gaming sources. The U.S. Hotels alone contribute more than 30% to the company’s value, according to our estimates. Revenue from hotel rooms increased 3% driven by slight improvement in REVPAR. While the overall U.S. operations saw slight increase in revenues, EBITDA jumped over 6% to $356 million during the quarter.  MGM’s business operations that primarily include leisure and entertainment activities, can be linked to the state of the economy and consumer spending. MGM will benefit from increasing consumer spending in the U.S. During the fourth quarter, consumer spending increased to $10,833 billion from $10,744 billion in the third quarter of 2013 . Consumer spending has been rising since 2010, as seen in the chart below.
- MGM Resorts’ SEC Filings [↩] [↩] [↩] [↩]
- MGM Resorts International Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 19, 2014 [↩] [↩]
- Macau rakes in $45 billion gaming revenue in 2013, up 19%, Reuters, Jan 2, 2014 [↩]
- Macao receive almost 28 million visitors in the period between January and November, Macau News, Dec 30, 2013 [↩]
- UNITED STATES CONSUMER SPENDING, Trading Economics [↩]