MGM Resorts (NYSE:MGM) International (NYSE: MGM), a global leader in the hospitality and entertainment industry with a market capitalization of $9.9 billion, finds itself at a critical juncture as it navigates a complex landscape of opportunities and challenges. According to InvestingPro data, the company’s stock currently trades near its 52-week low at $33.13, suggesting potential value opportunities for investors willing to weather current market conditions. With a strong presence in Las Vegas and Macau, MGM has demonstrated resilience in the face of market volatility while pursuing strategic growth initiatives. This comprehensive analysis delves into the company’s recent performance, future prospects, and the factors shaping its trajectory in the competitive gaming and hospitality sector.
Company Overview and Market Position
MGM Resorts International operates a diverse portfolio of properties, with its core business centered in Las Vegas, complemented by significant operations in Macau and regional U.S. markets. The company has demonstrated solid financial performance, with InvestingPro data showing revenue of $17.2 billion in the last twelve months and a healthy gross profit margin of 46%. For investors seeking deeper insights, InvestingPro offers additional metrics and analysis through its comprehensive Pro Research Report, available for MGM and 1,400+ other top US stocks. The company has evolved over the past decade, focusing on catering to a higher-margin, upscale clientele in Las Vegas, which now accounts for approximately 60% of its total EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent/Restructuring costs).
In recent quarters, MGM has faced a mixed performance across its various segments. The Las Vegas market has shown resilience, with gaming revenue tracking flat year-to-date as of January 2025, only slightly off from the all-time high recorded in June 2024. However, the company experienced challenges in the third quarter of 2024, with Las Vegas EBITDAR missing consensus expectations by 7% when excluding insurance payments related to a 2023 cyberattack.
Financial Performance and Projections
MGM’s financial results have been a subject of close scrutiny by analysts. While the company’s third-quarter 2024 EBITDAR of $1,136 million fell slightly short of consensus expectations, InvestingPro data reveals the company maintains strong financial health with an overall score of "GOOD" and has generated $1.3 billion in levered free cash flow over the last twelve months. Five analysts have recently revised their earnings estimates upward for the upcoming period, suggesting potential improvement in performance. Despite this, Las Vegas revenue increased by 1% in the quarter, with hotel revenue up 7% year-over-year and food and beverage revenue up 6%. Casino (EPA:CASP) revenue, however, declined by 13% due to tough comparisons from VIP business in the previous year.
Looking ahead, analysts project MGM’s Las Vegas EBITDAR to decrease by 3% in 2025, reflecting ongoing challenges in the market. However, the company is expected to focus on pricing and cost efficiencies to improve EBITDAR in Las Vegas for 2025. Consensus models predict a 1% increase in Caesars (NASDAQ:CZR) Entertainment’s Las Vegas EBITDAR for the same period, highlighting the competitive nature of the market.
Strategic Initiatives and Growth Prospects
MGM is actively pursuing several strategic initiatives to drive growth and enhance shareholder value. The company’s online gaming and sports betting arm, BetMGM, has shown promising signs, turning a profit in the third quarter of 2024. However, analysts expect BetMGM to incur losses in upcoming quarters as it remains in an investment period.
International expansion remains a key focus for MGM, with potential opportunities in markets such as Brazil, Thailand, and the United Arab Emirates. The company is also exploring the possibility of obtaining gaming licenses in New York, which could open up new revenue streams.
MGM’s capital allocation strategy has been robust, with a significant share repurchase program implemented post-pandemic. The company maintains a strong liquidity base of $4.8 billion, which provides flexibility for future investments and shareholder returns.
Challenges and Risks
Despite its strong market position, MGM faces several challenges that could impact its performance in the coming years. InvestingPro analysis indicates the stock’s high beta of 2.22 and significant price volatility, with a -28% return over the past six months. The company’s current P/E ratio of 11.7x and EV/EBITDA of 15.5x suggest moderate valuation levels relative to industry peers. Investors seeking comprehensive valuation insights can access detailed analysis and additional metrics through InvestingPro’s advanced screening tools. The gaming industry, particularly brick-and-mortar casinos, has underperformed compared to other periods in the last 15 years. New supply continues to impact EBITDA growth rates across several markets, potentially putting pressure on MGM’s profitability.
The company’s digital segment, including BetMGM, faces intense competition and may require continued investment to maintain market share. Analysts have revised profitability estimates for BetMGM downward for 2025, projecting an EBITDAR of -$46 million compared to previous expectations of +$37 million.
Additionally, MGM must navigate the volatility in Las Vegas gaming revenue and potential softness in room rates, particularly in relation to events such as Formula 1 races, which could impact EBITDAR in the fourth quarter of 2024 and beyond.
Bear Case
How might continued volatility in Las Vegas gaming impact MGM’s performance?
The Las Vegas market, which accounts for a significant portion of MGM’s EBITDAR, has shown signs of volatility. The 13% decline in casino revenue in the third quarter of 2024 due to tough comparisons from VIP business highlights the potential for fluctuations in this key market. If this volatility persists, it could lead to further misses in EBITDAR expectations and put pressure on MGM’s overall financial performance.
Moreover, the projected 3% decrease in Las Vegas EBITDAR for 2025 suggests that challenges may continue in the near term. MGM will need to successfully implement pricing and cost efficiency measures to mitigate these headwinds. Failure to do so could result in underperformance relative to competitors and potentially impact investor confidence.
What risks does MGM face in its digital segment, particularly with BetMGM?
While BetMGM has shown promise by turning a profit in the third quarter of 2024, analysts expect losses in upcoming quarters as the segment remains in an investment phase. The downward revision of profitability estimates for BetMGM in 2025 from +$37 million to -$46 million EBITDAR underscores the challenges in this competitive space.
The digital gaming and sports betting market is characterized by intense competition and high customer acquisition costs. If BetMGM fails to gain sufficient market share or if the investment period extends longer than anticipated, it could drain resources from other segments of MGM’s business. Additionally, regulatory changes or increased competition could further impact the profitability and growth potential of this segment, potentially affecting MGM’s overall valuation and growth prospects.
Bull Case
How could MGM’s strong position in Macau drive future growth?
MGM’s operations in Macau have shown resilience and potential for growth. The strong performance in Macau has offset weaker results in other segments, demonstrating the importance of this market to MGM’s overall portfolio. As Macau continues to recover from the impacts of the COVID-19 pandemic and travel restrictions ease, MGM is well-positioned to capitalize on increased visitation and gaming activity.
The consistent performance from Macau contributes to analysts’ projections of sustainable mid-double-digit free cash flow per share growth for MGM. If Macau’s recovery accelerates or exceeds expectations, it could provide a significant boost to MGM’s financial results and potentially lead to upward revisions in earnings estimates. This could, in turn, drive stock price appreciation and enhance shareholder value.
What potential does MGM have for expanding its international presence?
MGM’s strategic focus on international expansion presents significant growth opportunities. The company is exploring potential gaming licenses in markets such as New York, Thailand, and the United Arab Emirates. These new markets could provide diversification of revenue streams and reduce reliance on Las Vegas and Macau.
Furthermore, MGM’s digital initiatives outside the United States offer additional avenues for growth. The company’s strong brand recognition and expertise in hospitality and gaming could be leveraged to establish a strong presence in new international markets. Successful expansion into these areas could drive long-term growth, increase market share, and potentially lead to a re-rating of MGM’s stock as the company demonstrates its ability to execute on global opportunities.
SWOT Analysis
Strengths:
- Strong market position in Las Vegas and Macau
- Diverse portfolio of high-end properties
- Robust liquidity position and capital allocation strategy
- Growing presence in online gaming through BetMGM
Weaknesses:
- Volatility in Las Vegas gaming revenue
- Underperformance in digital segment profitability
- Dependence on VIP business, which can be unpredictable
Opportunities:
- International expansion into new markets (e.g., New York, Thailand, UAE)
- Potential for growth in Macau as the market recovers
- Further development of online gaming and sports betting platforms
- Expansion of non-gaming revenue streams in existing properties
Threats:
- Increased competition in key markets
- Regulatory changes affecting gaming operations
- Economic uncertainties impacting consumer discretionary spending
- Potential for new supply to impact EBITDA growth rates
Analysts Targets
- JMP Securities (January 16, 2025): No specific target mentioned
- JMP Securities (January 10, 2025): No specific target mentioned
- JMP Securities (November 25, 2024): Market Outperform, PT $50
- JMP Securities (October 31, 2024): Market Outperform, PT $54 (lowered from $56)
- Barclays (LON:BARC) (October 31, 2024): Overweight, PT $50 (lowered from $54)
- JMP Securities (October 18, 2024): Market Outperform, PT $56
- Barclays (August 1, 2024): Overweight, PT $56
- JMP Securities (August 1, 2024): Market Outperform, PT $57 (lowered from $59)
- BTIG (July 2, 2024): Buy, PT $52
MGM Resorts International faces a complex landscape of opportunities and challenges as it navigates the evolving gaming and hospitality industry. While the company’s strong position in key markets and strategic initiatives provide a foundation for growth, it must contend with market volatility, competitive pressures, and the need to successfully execute its expansion plans. Investors and analysts will be closely watching MGM’s performance in the coming quarters to assess its ability to overcome near-term headwinds and capitalize on long-term growth opportunities.
This analysis is based on information available up to January 17, 2025, and reflects the views and projections of various financial analysts and institutions as of that date. With MGM’s next earnings report due on February 12, 2025, investors can stay ahead of market movements by accessing InvestingPro’s exclusive insights, real-time alerts, and comprehensive financial analysis tools. The platform offers additional ProTips and metrics beyond those mentioned here, helping investors make more informed decisions about their MGM positions.
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