MGM Will See Higher Earnings Driven By Growth At The Strip

August 4th, 2014 by Trefis Team
+10.47%
Upside
42.71
Market
47.18
Trefis
MGM: MGM Resorts logo
MGM
MGM Resorts

MGM Resorts (NYSE:MGM) will report its Q2 2014 earnings on August 5. We expect the company to benefit from the recovery at the Las Vegas Strip, which saw a 22% jump in gaming revenues in the month of June as compared to the prior year period. Recently, Wynn Resorts (NASDAQ:WYNN) came up with its Q2 earnings, which grew 40% aided by strong growth in Las Vegas. It must be noted that majority of MGM’s properties are located in the U.S. and any recovery at the Strip will have a meaningful impact on MGM’s performance.

The company also received an unanimous vote from the Massachusetts Gaming Commission (MGC), approving an agreement to award MGM the license to operate a casino resort in the city of Springfield. [1] We’ll be closely watching for any update on this front.

MGM may see some pressure in Macau as the region saw slower growth in June due to a diversion to gambling on the FIFA world cup, leading to a drop in VIP gaming. This slowed the growth in Macau and gaming revenues grew by 5% to $11 billion during the second quarter.

Relevant Articles
  1. A Strong Vegas Business And Recovery In Macau Will Drive MGM’s Q2 Results
  2. What’s Happening With MGM Resorts Stock?
  3. Up 16% Over The Past Month, What’s Next For MGM Stock?
  4. With A Strong Vegas Business And A Possible Recovery In Macau, What’s Next For MGM Stock?
  5. What’s Next For MGM Resorts After A Strong Q2?
  6. What’s Happening With MGM Resorts Stock?

See our complete analysis for MGM Resorts International

Expect Strong Growth At The Las Vegas Strip

MGM’s U.S. operations witnessed 5% revenue growth in the first quarter driven by non-gaming sources. The company derives a significant portion of its revenues from non-gaming sources. The U.S. hotels business alone accounts for more than 30% to the company’s value, according to our estimates. We expect to learn strong growth in its hotels operations for the second quarter, benefiting from the higher convention mix. In its previous earnings call, the company stated that 16% of its room nights for the full year will come from convention side. [2] Higher convention boosted the RevPAR (revenue per available room) to $134 in the previous quarter. [3] We estimate RevPAR to grow around 5% to $133 in the second quarter as compared to the prior year period. We will look for confirmation with the release of earnings.

As far as casino operations are concerned, we expect the company to post strong growth driven by higher gaming volume at the Las Vegas Strip. In the previous quarter, casino revenues dropped by 2% due to a decline in table games hold percentage. However, any strength in hold percentage will aid the overall growth in casino revenues. The recent performance of Wynn Resorts at the Las Vegas Strip further strengthens our view on Strip’s casino operations. Wynn saw 26% jump in casino revenues driven by higher win percentage (Read More – Wynn’s Q2 Earnings Jump 40% As Las Vegas Operations Rebound).

MGM Will Benefit From Mass-Market Gaming Growth In Macau

Macau operations are meaningful for MGM as they contribute more than 38% to its value, according to our estimates. The region’s casino market continued its strong growth into 2014 and collected more than $23 billion in gaming revenues during the first half of the year. However, MGM like other casino operators will see some pressure on VIP side of gaming, which likely declined by 20% for the month of June. [4]

MGM’s Macau revenues jumped 26% to $941 million and EBITDA surged 33% to $241 million in the first quarter. [3] This was driven by better chip turnover and mass-market games hold percentage. Mass-market gaming in Macau has been on a roll with solid growth in the recent past. Other casino operators such as Las Vegas Sands (NYSE:LVS) and Wynn Resorts have also benefited from the surge in mass-market gaming (Also See – Las Vegas Sands’ Earnings Jump 31% Over Mass-Market Gaming Growth In Macau). During the second quarter, Wynn Resorts saw a 43% jump in mass-market table games win amount. We expect to learn a higher mass-market table games win percentage for MGM, which should boost its table games win amount.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

Notes:
  1. MGM Closer To Setting Up Springfield Casino Resort, Trefis Jun 18, 2014 [↩]
  2. MGM Resorts International Management Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, Apr 29, 2014 [↩]
  3. MGM Resorts’ SEC Filings [↩] [↩]
  4. MACAU’S JUNE SWOON DOWN TO ABSENT VIP GAMBLERS; SJM REGAINS MARKET SHARE CROWN, Calvin Ayre, July 2, 2014 [↩]