MGM Resorts (NYSE:MGM) International, a global leader in hospitality and entertainment with a market capitalization of $9.5 billion, finds itself at a crossroads as it navigates a complex landscape of opportunities and challenges. Currently trading at $31.87, the stock has experienced significant volatility, declining over 25% in the past six months. With a diverse portfolio spanning Las Vegas, regional U.S. markets, and international destinations, MGM has demonstrated resilience in the face of market fluctuations. Analysts maintain a bullish stance, with a consensus "Buy" recommendation and price targets ranging from $41.91 to $56.
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Financial Performance and Outlook
MGM's financial performance in recent quarters has been a tale of contrasts. While generating robust revenue of $17.2 billion over the last twelve months with a healthy gross profit margin of 45.8%, the company's third-quarter 2024 results fell slightly short of expectations, with EBITDAR coming in at $1,136 million. InvestingPro analysis reveals several key insights, including expectations of declining net income this year despite maintaining profitability over the past twelve months. This miss was partially offset by insurance claims related to a cyberattack in 2023, highlighting the company's ability to mitigate unexpected challenges.
Looking ahead, analysts project a mixed outlook for MGM. While some anticipate EBITDAR growth in the coming years, others have revised their estimates downward. JMP Securities, for instance, adjusted its EBITDAR projections for 2024-2026 to $4,672 million, $4,815 million, and $5,140 million, respectively, reflecting a more conservative outlook compared to previous estimates.
Las Vegas Operations
Las Vegas remains a crucial market for MGM, with the company's properties on the Strip catering to a high-end clientele. In the third quarter of 2024, Las Vegas revenue increased by 1%, driven by strong performance in hotel and food and beverage segments. Hotel revenue rose 7% year-over-year, while food and beverage revenue increased by 6%.
However, casino revenue in Las Vegas experienced a 13% decline due to tough comparisons from VIP business in the previous year. This volatility in gaming revenue has raised concerns among analysts about the stability of MGM's Las Vegas operations in the short term.
A notable factor influencing MGM's Las Vegas outlook is the impact of Formula 1 (F1) events. Analysts have expressed concerns about potential softness in room rates for the fourth quarter of 2024 due to F1-related bookings. While the full impact is yet to be determined, some estimates suggest it could affect EBITDAR by up to $30 million, though the actual figure is expected to be lower.
Regional and International Operations
MGM's regional U.S. properties and international ventures, particularly in Macau, play a significant role in the company's overall performance. The Beau Rivage in Mississippi, for example, is categorized as a "destination-type" asset that has shown resilience against macroeconomic challenges, catering to higher-end players.
Macau operations have been a bright spot for MGM, with strong performance helping to offset weaker results in other segments. This recovery in Macau is seen as a positive factor supporting the company's growth prospects and diversification strategy.
Digital and Online Gaming
BetMGM, MGM's online gaming and sports betting platform, has shown mixed results. While the platform achieved profitability in a recent period, analysts expect it to incur losses in upcoming quarters as it remains in an investment phase. Market share for BetMGM has stabilized around 21%, with a slight increase observed from the first to the second quarter of 2024.
However, recent announcements have led to significant cuts in profitability estimates for BetMGM in 2025. JMP Securities revised its EBITDAR projection for BetMGM from a positive $37 million to a negative $46 million, indicating challenges in the highly competitive online gaming space.
Capital Allocation and Balance Sheet
MGM's capital allocation strategy has been a point of strength, with the company maintaining a robust share repurchase program. In 2024, MGM repurchased $924 million worth of shares year-to-date, with plans to continue buybacks. Analysts project $1.8 billion in repurchases for 2024 and $916 million for 2025, demonstrating the company's commitment to returning value to shareholders.
The company's balance sheet remains strong, with a solid liquidity base of $4.8 billion. This financial flexibility positions MGM well to pursue growth opportunities and weather potential economic headwinds.
Market Position and Competitive Landscape
MGM's market position remains strong, particularly in the high-end Las Vegas segment. However, the company faces increasing competition both in traditional gaming markets and the rapidly evolving online betting space.
Valuation metrics suggest that MGM may be undervalued compared to its peers. The company's U.S. portfolio trades at less than 5x EBITDA, which some analysts view as a discount to other U.S. gaming companies. This valuation gap could present an opportunity for investors if MGM can execute on its growth strategies and improve profitability across its various segments.
Bear Case
How might continued volatility in Las Vegas gaming impact MGM's performance?
The recent 13% decline in Las Vegas casino revenue highlights the potential for ongoing volatility in MGM's core market. This volatility could stem from various factors, including shifts in VIP business, macroeconomic conditions affecting consumer spending, or increased competition from other entertainment options.
If this trend continues, it could put pressure on MGM's overall financial performance, given the significance of Las Vegas to the company's revenue mix. The company may need to adapt its marketing strategies and operational focus to mitigate the impact of fluctuating gaming revenue, potentially by emphasizing non-gaming amenities and experiences to attract a broader customer base.
What risks does MGM face from increased competition in the online gaming space?
The online gaming and sports betting market has become increasingly crowded, with numerous operators vying for market share. BetMGM's revised profitability estimates for 2025 suggest that the platform is facing challenges in this competitive landscape.
As more states legalize online gambling and established players continue to invest heavily in marketing and technology, MGM may find it difficult to achieve and maintain profitability in this segment. The company could face rising customer acquisition costs and pressure on margins, potentially requiring significant ongoing investment to remain competitive. This situation could strain MGM's resources and impact overall profitability if the digital segment fails to meet growth expectations.
Bull Case
How could MGM's focus on high-end consumers benefit the company in a challenging economic environment?
MGM's strategic focus on high-end consumers, particularly in Las Vegas and at properties like Beau Rivage in Mississippi, could provide a buffer against economic headwinds. High-net-worth individuals and luxury travelers tend to be less sensitive to economic fluctuations, potentially maintaining their spending on premium experiences even during downturns.
This focus on the luxury segment could lead to more stable revenue streams and higher profit margins compared to competitors targeting budget-conscious travelers. Additionally, catering to high-end consumers may allow MGM to command premium pricing for its rooms, dining, and entertainment offerings, supporting overall profitability even if visitor numbers decline.
What potential growth opportunities exist for MGM in international markets?
MGM's strong performance in Macau demonstrates the company's ability to succeed in international markets. This success could serve as a springboard for further expansion into other high-potential regions.
Analysts have noted potential opportunities for MGM to secure gaming licenses in markets such as New York, Thailand, and the UAE. These new markets could provide significant growth avenues, diversifying the company's revenue streams and reducing dependence on any single region.
Furthermore, MGM's experience in developing and operating integrated resorts positions it well to capitalize on the growing trend of casino-resort development in emerging markets. By leveraging its brand and operational expertise, MGM could establish a strong presence in new international destinations, driving long-term growth and enhancing shareholder value.
SWOT Analysis
Strengths:
- Strong position in Las Vegas high-end market
- Diverse portfolio of properties and revenue streams
- Solid balance sheet and liquidity position
- Successful operations in Macau
Weaknesses:
- Volatility in Las Vegas gaming revenue
- Challenges in BetMGM profitability
- Dependence on discretionary consumer spending
Opportunities:
- Expansion into new international markets (e.g., New York, Thailand, UAE)
- Growth in online gaming and sports betting
- Potential for market share gains in existing markets
- Development of non-gaming amenities to attract diverse customer base
Threats:
- Increased competition in key markets, especially online gaming
- Economic downturns affecting consumer spending on gaming and hospitality
- Regulatory changes in gaming industry
- Potential for future health crises impacting travel and tourism
Analysts Targets
- JMP Securities: $50 (November 25th, 2024)
- JMP Securities: $54 (October 31st, 2024)
- Barclays (LON:BARC): $50 (October 31st, 2024)
- JMP Securities: $56 (October 18th, 2024)
- Barclays: $56 (August 1st, 2024)
- JMP Securities: $57 (August 1st, 2024)
- BTIG: $52 (July 2nd, 2024)
MGM Resorts International faces a complex landscape of opportunities and challenges as it navigates volatility in its core Las Vegas market, seeks to capitalize on international growth prospects, and competes in the evolving digital gaming space. While the company's strong balance sheet and focus on high-end consumers provide a solid foundation, ongoing market uncertainties and competitive pressures will require careful management and strategic execution in the coming years. Investors and industry observers will be closely watching MGM's ability to leverage its strengths and address its weaknesses as it pursues sustainable growth and profitability across its diverse portfolio of assets.
This analysis is based on information available up to January 10, 2025, and does not account for any subsequent developments or market changes.
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