MGM Resorts: Risks and Opportunities?

by Trefis Team
MGM Resorts International
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It was a rough second quarter for MGM Resorts (NYSE: MGM) this year as revenues dropped by 91% (y-o-y) and operating losses reached $1 billion. The company observed a monthly cash burn rate of $270 million and $65 million at its domestic and Macau properties, respectively. After the sale-leaseback proceeds of MGM Grand and Mandalay Bay in Q1, the company raised $2.45 billion in debt during Q2. The total long-term debt obligations stand at a large $20 billion – nearly twice its current market capitalization. As the near-term growth prospects of the overall casino industry remains grim, the company’s stock continues to face downside risk from a challenging macroeconomic environment and a debt-laden balance sheet. Trefis highlights the historical trends in revenues, margins, and stock price in the dashboard Why MGM Resorts Stock moved -42%.

Despite digital push, a slow recovery will continue to hamper shareholder returns

BetMGM, an online gaming company jointly owned by MGM Resorts and GVC Holdings, observed its GGR (gross gaming revenues) grow in May and June, while the company’s properties in Las Vegas, Macau, and other regions remained shuttered. Per Q2 filings, BetMGM is likely to generate $130 million in net revenues this year. Also, the online gaming segment is expected to get a boost from the newly introduced digital innovations such as contactless check-in and virtual menu.

In 2019, MGM Resorts generated $13 billion in annual revenues with a 45% contribution from Las Vegas. The company expects its Las Vegas properties to continue to face revenue headwinds due to the rising number of coronavirus cases. The Regional properties also observed similar sluggishness with 90% (y-o-y) top line contraction during the second quarter.

Japanese dream looks too far-fetched

Since 2017, MGM Resorts revenues across its Vegas, Regional, and Macau properties have grown by 1.4%, 31%, 56%, respectively. While the Regional segment gained from a series of acquisitions and new property openings, Macau remains the key driver of top line growth. In fact, MGM China’s adjusted EBITDA increased by 37% while it declined by 8% for Las Vegas Strip resorts. Given the global macroeconomic uncertainty due to the coronavirus crisis, the possibility of Osaka becoming a prominent overseas gambling destination for Chinese tourists seems far-fetched. Notably, Chinese tourists account for nearly 30% of the total foreign visitors in Japan. Meanwhile, the $650 million of annual interest expenses will continue to widen losses until tourists flock to casinos again. Thus, there is a higher likelihood for MGM Resorts stock to observe a downside risk until Macau or Regional properties show signs of recovery.

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