When David Katz of Jefferies Equity Research met yesterday with MGM Resorts International executives, he found the company “bullish” about prospects for Las Vegas and Macau. But they were merely “optimistic” regarding igaming and “somewhat more measured about BetMGM.”
MGM execs allowed that BetMGM had recently lost market share, but they believe that their joint venture with Entain “can flourish.” The latter is undergoing a management change and Katz noted that its purchase of Angstrom Sports would provide a near-term benefit.
As for recovering online-market share, management indicated that its single-wallet/single-application approach will be of service. In addition, the purchase of LeoVegas doesn’t mark the end of MGM’s initiatives from its end. According to Katz, further purchases are on the way, along with live-dealer games. Management, he said, “remains focused on digital as an area of growth warranting investment.”
Closer to MGM headquarters on the Las Vegas Strip, the company noted that is just-launched partnership with Marriott International “provides demand through a more productive and cost-efficient channel” than online travel agencies.
The Bonvoy alliance was launched last month at New York-New York and is expected to add one resort per week through March. MGM expected this to increase average daily rates and reduce OTA commissions. Executive anticipation was that it could sell an additional 500,000 to 700,000 room nights per year through Marriott, reaping a benefit of $60 million to $70 million in the first fiscal year.
The one-time boost of Super Bowl LVIII and “a better execution of F1 should offset headwinds,” Katz wrote, including increased labor costs. Comparisons will also be easier going forward, MGM executives said, due to the impact of the 2023 cyberassault.
Management also outlined a series of strategic changes at MGM China, including rearranging the casino floor in its Cotai Peninsula casino in Macau and investing further in food and beverage offerings.
MGM brass “indicated that the property had not had ample time to fully ramp prior to COVID.” Profit and cash-flow margins will also be compressed and “are expected to remain flat to modestly lower (high 20’s) due to investment in low-margin amenities to comply with concession agreements” to increase investment in non-gambling attractions.
Looking ahead, Katz saw expense drivers from Japan and potential upgrade of MGM Empire City in Yonkers, along with renovations and digital acquisitions. He added, “Our impression is that capital returns through repurchases are likely to be less visible than in the past several quarters, given the initial cash position post sale/leaseback and the capital needs going forward.”
Regarding potential stock buybacks, Katz was cautious, writing, “As the need for capital becomes greater, opportunities for repurchases are offset. Our view has been that the buybacks are moderately productive, while the potential for growth in digital and new markets could be even more impactful on the shares.”
