MGM Resorts Earnings Driven By National Harbor Opening, Borgata Acquisition And Macau Rebound

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MGM Resorts International (NYSE: MGM) reported its Q1’17 earnings on April 27 and its net income and EPS nearly tripled, beating consensus estimates. MGM’s growth was driven by the new MGM National Harbor, the Borgata Hotel and Spa and strength in the Las Vegas and Macau gaming industries. MGM’s net revenues grew by about 23% in Q1’17 and about 75% of the incremental growth this quarter was contributed by MGM National Harbor and Borgata. MGM also benefited from the improved market conditions in Macau and MGM’s cost cutting measures despite the increased competition in the region. We expect MGM’s share to grow in Macau due to its anticipated opening of MGM Cotai in the 2nd half of the year. Las Vegas saw strength for MGM, which benefited from increased convention attendance in the region and the opening of T-Mobile Arena and Park Theater.

MGM National Harbor, Borgata Acquisition Paid High Dividends

MGM opened its new casino in Maryland in December 2016 and it helped generate record revenues and net income for MGM in Q1’17. In its first full quarter of operations, MGM National Harbor commanded nearly 30% market share in the Maryland casino industry and generated $173.2 million in revenues. This contributed nearly 35% of MGM’s incremental revenue growth this quarter. MGM’s acquisition of the Borgata in the third quarter of 2016 also contributed more than 40% of its overall incremental revenues. These two additions further strengthened MGM’s domestic portfolio, and are likely to generate double-digit growth for MGM’s overall revenues in 2017.

MGM Unaffected in Macau Despite Increased Competition

The competition in Macau’s gaming industry intensified after the opening of Wynn Palace and Parisian Macau in the third quarter of 2016. However, the gaming industry recovered tremendously after August 2016 and in Q1’17, Macau gross gaming revenues (GGR) grew about 13%. MGM China’s revenues grew nearly 7% in Q1’17, which was a solid performance given the fact that MGM delayed the opening of MGM Cotai of the latter part of 2017 and Las Vegas Sands (NYSE: LVS) grew just 15% in Macau despite opening a new casino in the region. Although Wynn Resorts (NASDAQ: WYNN) grew its market share in the region from 9% in Q3’16 to 16% in Q1’17, MGM has done well to increase its share marginally without MGM Cotai. MGM’s cost cutting measures, which started in the last quarter of 2016, have also paid off this quarter as MGM grew its margins from Macau by over 400 basis points and nearly doubled its operating income from the region. With the rise in Macau’s VIP and mass market gambling revenues, MGM’s market share in Macau is set to increase after the opening of MGM Cotai in the second half of 2017.

Las Vegas, Domestic Resorts Continue Their Growth Momentum

MGM’s Las Vegas resorts also performed exceptionally this quarter aided by a strong convention business calendar and a favorable Easter calendar shift this quarter. MGM also managed to grow its margins in the strip area by about 290 basis points, driven by strong revenue growth and cost cutting measures. The opening of T-Mobile Arena and the new Park Theater will double the number of shows hosted by MGM in the Las Vegas strip this year. Also, the strength in RevPAR of MGM’s hotels is likely to generate stable growth in 2017.

For our model and valuation, please refer to our complete analysis of MGM Resorts International

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