How Much Will Macau Contribute To MGM’s Top Line Growth?
MGM Resorts (NASDAQ: MGM) has performed strongly over the past couple of years, with nearly 9% annual growth in revenue and a 49% jump in the stock price between 2015-2017. The strong growth was largely due to a robust performance in the domestic market, in addition to the full operational year of MGM National Harbor. However, the anti-corruption crackdown by the Chinese government during 2015 and the weakening of the Chinese economy in 2016 negatively impacted MGM’s performance in Macau. Since then, MGM has seen a recovery in its Macau revenue, driven by strong growth in the mass market segment. Macau now contributes nearly 20% of the company’s overall revenue.
Based on recent market trends and the near-term outlook provided by the company’s management, we forecast MGM to report 6-7% revenue growth in the next two years, from $12 billion in FY 2018 to about $13.4 billion in FY 2020. Of the estimated $1.5 billion added to net revenues, we estimate that Macau will contribute around $752 million, or about 51% of the incremental revenues. We arrive at this estimate from MGM’s key growth metrics such as Casino, Hotel, and Entertainment & other revenue. We have summarized our expectations on our interactive dashboard platform. If you disagree with our forecasts, you can change the key drivers for Macau to gauge how changes will impact its expected revenue.
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Estimates for Key Growth Drivers
Macau contributes nearly 20% of the company’s overall revenue and has seen its revenue fall by nearly 6% annually between 2015-2017. This was largely due to the adverse effects of the anti-corruption crackdown during 2015 and the negative impact of changes in economic factors in 2016. The company’s 2017 revenue improved slightly due to growth in the mass market segment. However, we expect robust growth in Macau for MGM in 2018, since the gaming revenues in the region grew consistently for the 22nd straight month in May 2018. While the VIP market continues to see robust growth since the anti-corruption cooldown, a noteworthy trend in Q1’18 has been robust growth in the mass market segment, growing at just over 20%. This growth can be attributed to increased visitation by casual gamblers due to the improved infrastructure development – High-speed rail link and the Hong Kong-Zhuhai-Macau Bridge, both connecting Macau to Hong Kong. These tailwinds in the Macau casino market, coupled with its positioning in the mass market, and an improving Chinese economy, should provide for another year of robust growth for MGM. In addition, its entry into the Cotai region earlier this year should further boost its hold in the mass market segment and provide for significant long-term growth opportunities.
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