MGM Resorts International Reports 18 Percent Revenue Increase And The Share Price Falls

MGM's Q4 and 2017 results showed strong growth regionally and in China. Las Vegas was a late bloomer, but ended 2018 strongly

news image Joss Wood 20 February 2019
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It has been a year of upheaval for many casino companies, but MGM Resorts International reports that the year ended on a high.


Chairman and CEO Jim Murren told investors:


"We had a strong finish to the year, driving growth across all Las Vegas segments in the fourth quarter. Our fourth quarter consolidated net revenues grew by 18% and our consolidated Adjusted EBITDA by 21%, before certain one-time benefits.”

Q4’s numbers hit the right buttons with shareholders;


  • Consolidated net revenues increased 18% compared to the prior year quarter to $3.1 billion;
  • Consolidated operating income increased 50% compared to the prior year quarter to $336 million;


They helped bring 2018’s numbers to a comfortable close;


  • Consolidated net revenues for 2018 of $11.8 billion, an increase of 9% compared to the prior year; with Las Vegas Strip Resorts net revenues decreasing 1%, Regional Operations net revenues increasing 8%, and MGM China net revenues increasing 32%;
  • Consolidated operating income of $1.5 billion in 2018 compared to $1.7 billion in 2017;

Las Vegas casinos had a tougher year


The 1% revenue decrease at the Las Vegas properties reflected a weak start to the year. The fourth quarter was actually much better than 2017, with revenues up 6% to $1.4 billion.


Jim Murren did not feel that the Las Vegas headline figures represented the real state of the business. The regional casinos and China business were both growing strongly, In some cases, the regional casinos put in their best Q4 ever:


"Our Las Vegas Strip Resorts achieved the best fourth quarter Adjusted Property EBITDA since 2007. We also continued to gain share within our regional markets and realized record fourth quarter revenues and Adjusted Property EBITDA performance at MGM Grand Detroit, MGM National Harbor, Beau Rivage, and Gold Strike Tunica. Additionally, we closed out the year with the official openings of Park MGM and NoMad Las Vegas, both of which have received overwhelmingly positive responses.”


Legal sports betting is a major positive for MGM


During the earnings call, Murren was pressed for his thinking on the newly legalized sports betting that is spreading across the nation. He gave a comprehensive answer in which he summarized the opportunity as being much larger than just extra betting:


“But I think I'd have to say, from our perspective at MGM, we view sports betting as a larger opportunity than simply betting on sports. We look at it as a total interactive experience, which is why you will see us talking more about social games, digital ventures, and a big part of bringing in an outside consultant that we talked about in our digital strategies around 2020, that second phase that we’ve talked about is going to be in -- not only the interactive space, but around sports.”

He is less impressed with the speed and professionalism of the rollout in several states:


“The rollout state-by-state is as expected frustratingly slow, tortured, unclear, not transparent. Some states we believe have done it well, some states have done it very poorly. And there is a mix everywhere in between, and there are several major market states right now, that are exploring that right now.”


MGM is partnered with UK company GVC for online gambling and sports betting


The earnings call was fascinating as Murren explained his rationale for doing a deal with British company GVC. GVC owns the partypoker and partycasino brands currently active in the New Jersey market.


“We wanted to make sure that we had the right technology, in-house, scalable, evolving technology and we knew we didn't have it and we didn't want to buy it off the shelf and we did not want to buy a company, and that led us to the robust negotiations and the conclusion of joint venture with GVC, and that is working out extremely well, certainly from an MGM perspective, but I think GVC would say the same. We have a leader there. They are scaling up their operations. They are sourcing the headquarters. They are building staff. So we feel that, that was the right decision, not only from a technology perspective, but to get the in-game betting analytics, which are really vital to real success.”

Despite good news the share price took a 5% hit


MGM put out a lot of positive information and a lot of talk about future growth, but that wasn’t enough for the market. On the day the results were announced, the share price fell by nearly 6%.

One factor that may have hurt sentiment was the DOJ’s new opinion on the Wire Act of 1961. Murren addressed the issue directly;


“the latest missive from the DOJ is perplexing is an understatement. And if read as words, it would mean that Powerball as it exists in 44 states in the United States, isn't legal anymore. And so it's just -- we think an absurdly, poorly written and unenforceable opinion. And I don't think anyone in the industry, the gaming industry, the sports betting industry, feels any differently.”

He’s right about the attitude of the gaming industry. Nevertheless uncertainty will prevail until we get a better legal view, ideally in court. The New Hampshire Lottery has kicked the ball into play with a legal challenge to the new opinion. Until then good results alone won’t be enough to reassure the stock market.

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