MGM Resorts International’s Las Vegas Strip properties are raking in revenue in record numbers. The gaming operator Wednesday reported its Strip operations generated revenue of $2.3 billion in the third quarter, a year-over-year increase of 67% and “the best quarter in our Las Vegas Strip history,” according to MGM Resorts CEO and President Bill Hornbuckle during an investors call.
Hornbuckle attributed the strong performance on the Strip to an adjustment in “people’s perception of travel and the value that brings to their lives.”
“We feel obviously very strongly and are excited by our business here in Las Vegas,” Hornbuckle said. “You continue to see the strength and the growth. There’s been a couple of fundamental changes both in the context of the customer mix and the opportunity and desire to want to come to places like Las Vegas. Our position, with the asset changes of the Mirage and the Cosmopolitan and some of the other things we do, we just really like where we are in Las Vegas.”
Overall, MGM revenue for the quarter was $3.4 billion, a 26% increase over the $2.7 billion generated during the same time period in 2021. MGM’s regional operations brought in $974 million in net revenue, a 5% year-over-year increase.
Operating losses totaled $1.0 billion compared to operating income of $1.9 billion in the third quarter of 2021, due to a $1.2 billion increase in non-cash amortization expense relating to a change in the useful life of the MGM Grand Paradise in Macau. Chief Financial Officer and Treasurer Jonathan Halkyard said that adjusted property EBITDAR in Macau resulted in a loss of $70 million in the third quarter, due to property closures and COVID-related policies limiting visitation.
Halkyard noted that the growth of BetMGM, the company’s joint venture with Entain, has been “overwhelmingly positive.”
“Our 50% share of the losses in the third quarter narrowed to $24 million, which is reported as a part of the unconsolidated affiliates line of our adjusted EBITDAR calculation,” Halkyard said. “This brings our year-to-date loss to $186 million and we remain comfortable with our guidance for a $225 million contribution for the year.”
Net revenue associated with BetMGM in the quarter was $400 million.
Hornbuckle reported that MGM’s record-breaking Strip revenue was due to the demand for luxury accommodations and experiences.
“It’s tied to average rates at places like Aria, the Cosmopolitan, and Bellagio,” Hornbuckle said. “It’s tied to fine dining. It’s tied to the entertainment experiences that may be Bruno Mars or something of that ilk. We just haven’t seen a slowdown in that metric. It doesn’t mean we’re not eyes wide open on what might happen here. But to date and through October, the phenom of what’s happened in Las Vegas, particularly for our higher-end properties, continues. And we’re pretty excited about that.”
When asked about the previously stated expectation that MGM would turn a profit by the close of 2023 and if that goal might be reached earlier, Hornbuckle declined to speculate about the schedule for profitability.
“I wouldn’t go so far as to change our projections and prediction that by this time next year we should be in a profitable scenario,” Hornbuckle said. “I’m going to stay on point on that. With the new markets we’re opening up, we think we have real opportunity there. We’re doing some very interesting one-and-only kinds of things in the igaming marketplace. We have integrated jackpots that are omnichannel; they’ll stretch across our casinos, as well as digital channels.
“We continue to invest in the business and we want to see it grow,” Hornbuckle added. “We like the positioning we have, particularly in igaming, and ultimately in sports betting. … But we’re not going to get ahead of ourselves right now.”
MGM Resorts International shares dropped 84 cents, or 2.34%, to close at $35.11 on the Nasdaq. Shares dropped $1.21 to $33.90 after hours.
J.P. Morgan analyst Joseph Greff said in a statement that MGM’s fundamentals remain strong, “particularly in Las Vegas.”
“[MGM] is not seeing a degradation in spend or visitation,” Greff wrote. Business was described as “exceptionally strong right now. October was MGM’s highest month ever in terms of hotel revenue.
“We think the Las Vegas Strip is in a good position as an entertainment center during the week and weekend periods.”
Greff added that MGM has experienced “relative strength at its economy-tiered Las Vegas Strip properties as well as growth in its non-rated play, a reversal from a quarter ago. Part of this Las Vegas confidence stems from a strong city-wide convention calendar in 2023, sporting events (NCAA men’s basketball Sweet Sixteen and Elite 8, Formula 1, and the Super Bowl in early 2024).
Greff said J.P. Morgan likes MGM and reaffirms its overweight weighting for its attractive valuation; year-to-date pullback and mixed investor sentiment towards the name; its strong balance sheet with high liquidity and prospective net cash position; and its leverage to continued rebound in mid-week group/convention business in Las Vegas, “a market that should benefit from increasing event activity over the next two years that should allow relatively better performance” than generic leisure markets.
“We believe that the potential for BetMGM to morph into profitability is not baked into the stock at current levels,” Greff added.
