MGM’s Q3 Earnings Met Expectations, But May Face Q4 Headwinds
MGM Resorts International (NYSE: MGM) reported its Q3 earnings on Wednesday, November 8, and its overall EBITDA increased by 25% year-on-year in the quarter. The increase in the MGM’s revenues and EBITDA were driven by the Borgata acquisition and earnings from the newly opened MGM National Harbor. MGM’s domestic resorts continued their strong performance in the quarter, but MGM may face a tough fourth quarter due to the tragic shooting in Las Vegas. MGM China’s EBITDA declined by 21% this quarter due to the increased competition n the region despite the rebound in Macau casino industry. We continue to expect a decline in MGM’s Macau operations until MGM Cotai starts its operations in the first quarter of 2018.
Las Vegas Shootings May Adversely Impact MGM’s Domestic Results
MGM’s domestic casino revenues increased by nearly 32% in the third quarter, driven by the Borgata acquisition in August 2016 and MGM’s National Harbor opening in December 2016. MGM’s room revenues also increased by about 7% in the quarter despite lower convention attendees in the Las Vegas Strip region. MGM’s entertainment ventures such as T-Mobile Arena, where the Mayweather-McGregor fight took place, also contributing to the strong growth of MGM’s domestic operations this quarter.
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However, we believe that the fourth quarter will be the toughest quarter for MGM’s domestic operations due to a number of factors. First, tourism in Las Vegas may suffer due to the recent shooting in the area. Secondly, the Borgata’s earnings will also count as organic starting next quarter, which will moderate the revenue growth of MGM’s domestic resorts.
MGM China Continued to Underperform In Macau But There Is A Silver Lining
The gross gaming revenues (GGR) in Macau increased by more than 20% in Q3’17 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 year, which contributed to the VIP gaming growth. The opening of new casinos in the region also contributed to the growth in Macau’s GGR. MGM China’s Macau revenues declined by 6% in the third quarter due to the intensified competition in the region. MGM further delayed the opening of MGM Cotai to the first quarter of 2018, which may continue to hurt MGM’s 2017 earnings. However, we expect MGM’s earnings and revenues to bounce back starting in the first quarter of 2018 after the opening of MGM Cotai.
For our model and valuation, please refer to our complete analysis of MGM Resorts International
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