Las Vegas Recovery Falls Flat for MGM

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Las Vegas is slipping again and it doesn't bode well for casino companies focused on Sin City. MGM Resorts (NYSE: MGM  ) announced earnings today and they were anything but impressive.

Net revenue rose 2% in the quarter to $2.3 billion, but this was driven by a 7% rise in Macau. When you look at wholly owned domestic resorts, revenue declined 2% on broad weakness. Hotel occupancy, food and beverage revenue, and entertainment revenue all fell in the third quarter, indicating continued weakness in the mass market. Gaming revenue increased slightly, but this was largely due to better hold than last year.  

The results show that improved results at Wynn Resorts  (NASDAQ: WYNN  ) may have been an outlier in Las Vegas. Wynn benefited from a much higher hold percentage than a year ago and also saw occupancy fall in the third quarter.

CityCenter falls flat
Net loss fell to $154.7 million for the third quarter from $106.6 million a year ago. The larger loss was driven by a $42.8 million loss at CityCenter from $7.7 million a year ago. CityCenter has been a drag on MGM since it was built and there are only small signs of improvement. Revenue increased 3% from last year and adjusted EBITDA rose 18% from a small base to $59 million, but this improvement may not last. The company is taking charges for demolishing the Harmon, and the site will again be a construction site, which could drive away customers.

MGM's biggest problem is the debt built up by building CityCenter and acquiring resorts in Las Vegas. The company currently has $14.1 billion in long-term debt and quarterly interest expenses of $276 million. With that sort of overhang, it can't afford for conditions to get worse in Las Vegas.

These numbers don't bode well for Caesars Entertainment (NASDAQ: CZR  ) , which doesn't even have Macau to lean on for support.

Bright spots ahead?
The only two bright spots I can see for MGM is its Cotai resort and the potential for online gaming in the U.S.

MGM's Cotai resort will be in the center of Cotai, surrounded by Wynn, Melco Crown (NASDAQ: MPEL  ) , Las Vegas Sands (NYSE: LVS  ) , and SJM. The problem is that this resort won't open until at least 2016, so positive cash flow that could help MGM's debt is years away.

Online gaming could be a plus, but it would require federal approval to make a meaningful impact, and that too may be years out.

Foolish bottom line
MGM's debt situation and continuing weakness in Las Vegas leaves a "Do Not Touch" sign on the stock for me. Investors would be wise to focus on Macau-centric stocks like Las Vegas Sands, Melco Crown, and Wynn Resorts instead of a debt-laden company still focused on Las Vegas. 

A real growth stock in gaming
For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's certainly the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further, but will it be able to replicate its prior successes? Learn about all these opportunities, and the risks they pose, in our brand-new premium report on Las Vegas Sands. We're providing a full year of analyst updates to go with it, so make sure to claim your copy today by clicking here.


Fool contributor Travis Hoium manages an account that owns shares of Melco Crown Entertainment and Wynn Resorts, Limited. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2012, at 10:38 AM, cp757 wrote:

    Travis Hoium manages an account that owns shares of Melco Crown Entertainment and Wynn Resorts, Limited. Travis has never purchased shares of Las Vegas Sands so he loves to pump WYNN, and MPEL. I get that he wants to pump them but again he missed the boat. Las Vegas Sands invented, and developed Cotai Central and the center of Cotai is the Venetian Macao casino resort in Macau owned by the Las Vegas Sands corporation. They will build a replica of the Eiffel Tower next to the Venetian which is also the largest inhabited building in the world. Las Vegas Sands will have 40% of the rooms in Macau but the percentage of rooms on Cotai Central is over 80% and that is the new center hub of gambling in the world. Macau is all about Mass Market and Las Vegas Sands is the King of Mass Market. Travis pumped WYNN for the last two years and now he is not as happy with his choice. Long term and short term LVS is the best stock in gaming.JMHO

  • Report this Comment On November 01, 2012, at 11:14 AM, TMFFlushDraw wrote:


    You've been criticizing my gaming picks for two years and yet you always fail to point out that both MPEL (122.5% gain) and WYNN (27.8%) have outperformed LVS over that timeframe. In fact, over the past two years LVS is down 1%, trailing even the S&P's 25% gain.

    What I'm here to provide is unbiased opinions on gaming stocks and my track record in gaming speaks for itself. After analysis of gaming companies it is my view that over the next five years MPEL and WYNN will both outperform LVS. As an investor I've made an investment in these companies as a result, which is also my job.

    The fact is, I did own shares of LVS at the bottom in 2009 and sold at around $35 per share in 2010. As for now, LVS isn't a bad stock, it's just not THE BEST stock in gaming. Of course it has the most market share, it's the biggest company out there. You're paying for it to have the biggest market share. Both MPEL and WYNN on the other hand have upside, something LVS has far less of.

    Travis Hoium

  • Report this Comment On November 02, 2012, at 3:20 PM, cp757 wrote:

    Travis as usual you pick your dates to compare stocks. You have said you don't jump in and out of stocks but that is not what it looks like. You compare the last two years because it works for you and that is fine.

    I will use my time period and we can look at the results. From March 9th 2009 until today LVS is up 3,169 % and now has a 3.08 % dividend. Las Vegas Sands is expanding revenue and new projects that will increase the share price. MPEL is up 466 % with no dividend and the growth is not as good. WYNN did better over that period at 677 % and has a dividend but the legal problems they have are too risky and many of your minions followed you over the cliff with WYNN so your advice has been biased and this has been pointed out to you by more investors than just me. WYNN is getting less market share in Macau and that will not change until 2016 and they are only adding 2000 rooms in 2016. They are not in the center of the Cotai Strip. The Venetian and The Parisian are in the Center of Cotai and that is the new gaming hub in the world.

    You continue to talk about growth in Macau as if Las Vegas Sands is not even building any new casinos. By spring 2013, the total number of hotel rooms on Cotai will approach 14,000... with almost 10,000 of them controlled by Las Vegas Sands. That's almost 75 % of the rooms on Cotai and you think they have a problem with growth ?

    They will get 400 new tables in January 2013 and that will add $8,700 X 400 tables X 365 days a year, that's a lot of New Money. That's 1.271 billion dollars more in revenue just on the new tables and WYNN and MPEL will take three to 4 years to add just a small percentage of that.

    The Parisian which will be opening in 2015 and owned by Las Vegas Sands will have 3500 to 4500 rooms plus Gaming capacity: 350 – 450 table games and 4,000 slots and ETGs . It will have a replica of the Eiffel Tower and family-oriented facilities to attract middle-class gamblers from China, who provide wider margins. Macau wants non gaming attractions and that is what they are adding and that will give them even more tables and more mass market. They have 20 % of the market now and they are going to 40% of the market in Macau . Your bias is misplaced and obvious to everyone.

  • Report this Comment On November 03, 2012, at 1:45 PM, TMFFlushDraw wrote:


    What bias? My picks have beaten LVS since I've been with The Motley Fool. Of course, if you buy on the day the stock bottomed (I bought a week before, BTW) you're going to get better numbers out of LVS. But please do a more comprehensive look back. Go back and look at the price performance of LVS, WYNN, and MPEL on any whole year interval or any regular interval of your choosing. I looked at 1,2,3,4,5,6,7,8,9,10 years. Which gaming stock is the best investment over these intervals? LVS is once, the 3-year interval. Over every other interval it underperforms.

    My record has been very public for 2.5 years since I've been writing for The Motley Fool and I don't have a public record before that so I won't be able to convince you I liked LVS in 2009. All I can do is point to performance since my record has been public and I think my record is pretty strong.

    Please tell me I'm wrong when the stocks I pick actually underperform LVS. Right now I'm outperforming LVS by a long shot.


  • Report this Comment On November 03, 2012, at 8:50 PM, cp757 wrote:

    I said this in an artical in 2009 but I bought the stock on March 9th 2009 so thats what I am looking at. I am up 3,169% and I have a dividend every quarter that most people can live on for a year so I would say you have not done as well.

    The other point I would make is LVS has a 3.08 % dividend but that will go up in the future. If you reinvest that every quarter ( which I do ) I have a higher return than 3,169%. Would you care to tell everyone your return on investment for your portfolio.

    I have said all along what the stock was going to do and when I bought it. You are the one that has missed the boat. I heard from you how bad LVS was when it was 7 dollars and then 12 dollars and then 20 dollars.

    Investing is all about style and good research. Jumping in and out of your hot picks have not worked in the past and is the reason a lot of your picks have done so bad. Anyone can look up your picks and you have a lot of bad ones. You told everyone WYNN was going up when it was at 134 and now you say its not a growth company. Really,I think I said that before you did or did you forget ?

    People dont even post comments on a lot of your ramblings because you are so "Arrogant" and "Biased". You need to look at yourself and ask why you are the way you are. JMHO

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