MGM Resorts Earnings: MGM Disappoints In Macau
MGM Resorts International (NYSE: MGM) recently reported its Q2’17 earnings and missed revenue estimates by nearly $30 million. MGM’s overall revenues grew by nearly 16% in the quarter, driven by the new MGM National Harbor, the Borgata Hotel and Spa and strength in the Las Vegas gaming industry, partially offset by the decline in MGM’s Macau revenues. Although Macau’s industry rebounded strongly in the last six months, MGM failed to capitalize on the improved market conditions in Macau. We believe that, due to the increased competition in Macau, MGM’s market share declined in the last 6 months and is likely to continue declining until the opening of MGM Cotai. However, MGM may bounce back after this quarter due to the highly anticipated Mayweather-McGregor fight and the opening of MGM Cotai.
Intensified Competition Resulted in Underperformance of MGM China in Macau
The gross gaming revenues (GGR) in Macau increased nearly 22% in Q2’17 and was driven by the return to growth in VIP gaming in the region. The corruption crackdown movement of Macau’s government softened in the last six months and is seen as the primary growth driver behind the rise of VIP gaming in Macau. While MGM’s competitors, including Las Vegas Sands and Wynn, performed well this quarter, MGM’s Macau revenues declined by 1%. We believe that the underperformance of MGM was primarily due to increased competition as Wynn and LVS opened new casinos last year and have grown their market share significantly since then. MGM delayed the opening of MGM Cotai, and the company likely lost market share as a result. We expect MGM’s underperformance to continue in Q3 as well, but it should turn things around after the opening of MGM Cotai.
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Domestic Resorts
MGM’s casino revenues from its domestic resorts grew by more than 40% in Q2’17 driven by MGM National Harbor, Borgata hotels, and MGM CityCenter. MGM National Harbor is already the market leader in Maryland and will continue to generate incremental revenues for the next few quarters. Borgata was acquired by MGM in Q3’16 and will also add significantly to growth in MGM’s domestic resort revenues. Further, MGM’s other domestic resorts are also growing organically, and the company’s Q3 results will likely be boosted by the much-awaited Mayweather-McGregor fight at T-Mobile Arena.
For our model and valuation, please refer to our complete analysis of MGM Resorts International
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