MGM Resorts Q3 Earnings Benefit From Macau Mass-Market Gaming Growth

-0.06%
Downside
47.21
Market
47.18
Trefis
MGM: MGM Resorts logo
MGM
MGM Resorts

MGM Resorts (NYSE:MGM) recently posted its Q3 2014 earnings with revenue growth of 1% and EBITDA growth of 2% for the quarter. The company reported a net loss of $0.04 a share as compared to a loss of $0.05 per share in the prior year period. Macau revenues declined 2% amid lower VIP turnover while EBITDA jumped 12% due to robust mass-market growth. U.S. casino revenues also declined 4% due to a decrease in table games hold percentage. However, non-gaming operations continued their uptrend with 5% growth in room revenues and 9% growth in food & beverage sales. [1] Overall, the results were on expected lines, given a significant decline in VIP gaming in the world’s largest gambling hub and a decline in Las Vegas Strip casino revenues over the previous two months.

We estimate gross revenues of about $11 billion for MGM Resorts in 2014, with EPS of $0.54, which is in line with the market consensus of $0.47-$0.82, compiled by Thomson Reuters. We currently have a $26 price estimate for MGM Resorts, which we will soon update to incorporate the recent quarterly earnings announcement.

See our complete analysis for MGM Resorts International

MGM Macau Revenues Drop Amid Lower VIP Gaming Turnover

Table games turnover in the VIP segment was down 19% and hold percentage was 2.7% as compared to 2.8% seen in the prior year period. As a result, Macau revenues declined 2% to $794 million. [1] Casinos operators in Macau witnessed a 7% decline in gross revenues during the third quarter. This can be attributed to ongoing anti-corruption crackdown, which is keeping VIPs away from Macau. While VIP gaming is struggling, Macau’s mass-market gaming continued its uptrend and posted 16% growth for the third quarter. MGM also benefited from the mass-market gaming growth and saw a 12% jump in Macau EBITDA to $214 million for the quarter. A 12% increase in volume and higher hold percentage of 28% as compared to 24% in the prior year period, led to a 34% jump in MGM’s mass-market revenues. [2]

Overall, the company was able to balance its Macau business as growth in mass-market table games offset much of the decline in VIP gaming during the quarter. Going forward, we expect mass-market gaming to continue to grow strongly and driven growth for the company. It must be noted that mass-market gaming provides much higher margins for casino operators, as it does not involve junket operators.

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?

Domestic Resorts EBITDA Drop Due To Lower Table Games Hold Percentage

Revenues at MGM’s domestic resorts grew 2% led by a steady growth in non-casino operations. The hotel operations were up 5% due to a 6% growth in RevPAR (Revenue per available room) to $124. Occupancy also increased to 95% as compared to 93% seen in the prior year period. The company is placing a record 17% convention mix for the year. [2] This higher convention mix continues to boost food & beverage revenue, which grew 9% for the third quarter. Accordingly, the company has given a guidance of 5% growth in hotel RevPAR for the fourth quarter. We expect the hotel business in particular to do well in the near term, as well as in the long run. A recovery in the economy and higher disposable income will boost the RevPAR. We estimate RevPAR will be north of $170 towards end of the decade as compared to $124 currently.

Looking at the company’s casino operations in the U.S., revenues declined 4% due to lower table games hold percentage of 19.8% as compared to 21.5% seen in the prior year period.  Lower casino revenues led to a 6% decline in EBITDA to $324 million. [1] Overall, the Las Vegas Strip saw a 6% drop in gaming in August and 12% drop in September. [3] [4] However, it has been up for most of the year so far, led by a steady growth in Baccarat. Looking at the first eight months of 2014, baccarat wagering at the Strip is up 11%. [4] We expect MGM to benefit from the Baccarat growth due to its wide presence in the U.S. Accordingly, we estimate table games gross revenues to be north of $900 million for 2014.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. MGM Resorts’ SEC Filings [] [] []
  2. MGM Resorts International’s (MGM) CEO James Murren on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 30, 2014 [] []
  3. Nevada gambling revenues down 6 percent in Sept., Bloomberg Businessweek, Oct 28, 2014 []
  4. GAMING REVENUE REPORT, Nevada Gaming Control Board, August 2014 [] []