How Much Will Las Vegas 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.

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 Las Vegas will contribute around $725 million, or about 49% 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 Las Vegas to gauge how changes will impact its expected revenue.

Estimates for Key Growth Drivers

Las Vegas contributes to slightly over 80% of the company’s overall revenue and has seen its revenue grow by nearly 13% annually between 2015-2017. This was largely due to robust growth in Table games, Slot revenue, and hotel revenue on a comparable basis. In addition, the full operational year of MGM National Harbor in 2017 further bolstered domestic revenue. The company expects domestic resorts to grow in mid-to-high single digits in the second half of 2018, driven by several citywide conventions and a recovery in the Vegas market. Further, the sooner than expected opening of MGM Springfield, its Massachusetts resort, should boost Q4’18 revenue and provide for significant medium term growth. However, MGM expects to see some near term pressure in the Monte Carlo casino due to the undergoing transformation,  cancellation of a major boxing fight, and additional time required to recover at Mandalay Bay, which should likely impact company’s margins. We expect the domestic market to remain the driving force led by the improved outlook of the U.S. economy, recovery in the Vegas market – owing to recent tax cuts and higher customer spending – and its expansion into Massachusetts. Further, we expect the legalization of sports gambling to boost its domestic operations.

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