The Year In Review: MGM Resorts Businesses Improved In 2016, Backed By Solid Performance Of Las Vegas Casinos
The year 2016 was a good one for MGM Resorts International (NASDAQ: MGM). It managed to avert its revenue decline, despite the general weakness in the casino industry. MGM’s stock price went up by more than 30%, which can be attributed to significant improvement in its profitability. The company’s EBITDA saw nearly 18% growth in the first nine months of 2016. MGM’s greater focus on the Las Vegas casino market came in as a blessing in disguise as the region’s growth remained stable at the time when other major casino markets, including Macau and Singapore, were declining sharply. In particular, positive growth in Macau’s GGR (gross gaming revenue) in the second half of 2016 stoked further optimism among MGM investors. MGM also opened its new casino National Harbour in Q4’16 which is expected to build some momentum in the coming quarters.
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About 75% of MGM’s overall revenues came from its Las Vegas operations in the first nine months of 2016, as compared to 40% or Wynn and 14% for Las Vegas Sands. Macau gaming industry suffered after the government started clamping down on junket operators in mid-2014, which resulted in a significant decline in the VIP gaming. The decline in the region’s casino industry continued in the first half of 2016. While this affected every casino operator, the impact on MGM’s financials was mitigated by the fact that the company had most of its operations in Las Vegas. We expect MGM to continue expanding in the U.S.
MGM National Harbor, which is MGM’s sixth casino in the U.S., opened on December 8th in Washington DC. The $1.4 billion casino includes 3,600 slots and 140 table games and can accommodate up to 4,000 guests. MGM is likely to gain from increased convention attendance, airline capacity and domestic gaming in the U.S., given that no new casinos are coming up in Las Vegas strip till 2019.
Macau GGR growth triggered optimism among investors
We were bullish on Macau casino industry and expected it to rebound starting 2017. However, Macau GGR, long in decline, showed the first instance of monthly increase in August and by November witnessed double-digit growth. Although Macau constitutes just 25% of MGM’s overall revenues, this is still crucial as MGM is expected to open its new casino in Cotai strip in 2017. If Macau continues its growth in 2017, increased visitation in Macau would mean huge success for MGM Cotai and could beat investor expectations.
Silver Lining: MGM beat our expectations for EBITDA Margin
MGM’s overall adjusted property EBITDA increased by nearly 18% in the first nine months of 2016, driven by cost cutting and operational efficiency measures, especially in Macau. Additionally, MGM Resorts completed the acquisition of Boyd Gaming Corporation’s interest in the Borgata Hotel Casino and Spa in Q3’16 which added about $151 million to its Q3’16 revenues. This constituted about 64% of the incremental revenues in Q3’16 and we believe that this will put MGM in a strategically strong position relative to its competitors, which are highly dependent on Macau market.
Overall, we believe that 2016 was a good year for MGM Resorts as it managed to avert its revenue decline and increase its margins despite the challenging environment in Macau.
We will follow up this analysis with the expectations for 2017, and how our valuation fits in that. Meanwhile, please let us know your views by commenting in the box below.
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of MGM Resorts International.
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