MGM Resorts International Investor Alert: Earnings Were Good But Don't Be Fooled

MGM Resorts International (NYSE: MGM  ) reported Q1 2014 earnings Tuesday morning. With consolidated net revenue increases of 12% YoY, as well as an EBITDA Growth of 19% over the same time, MGM seems to have been an out performer this quarter. While these figures are good, and MGM investors should be happy as the share price gets a small bump, the figures are still lower than others in the industry, such as Las Vegas Sands (NYSE: LVS  ) which reported a few days earlier.

The key facts laid out in the MGM Resorts earnings report include:

  • Net revenue of $2.6 billion, up 12% YoY
  • Operating income of $413 million, compared to $302 million YoY
  • EBITDA for domestic properties up 12% YoY
  • EBITDA for MGM China properties up to record levels, with 33% increase YoY

Increasing revenues on Mass Market gamers
These numbers should make MGM Resorts investors happy. The company is making strides to continue growing in Macau. One interesting point in the earnings is the 45% revenue increase MGM had in mass market gaming in China, as opposed to the VIP high-rolling players that Macau resorts used to focus on. The middle class of China, those that make up most of the mass market consumer base for gaming companies, is a good bet on continued growth. According to research and analysis by Mckinsey group, by 2022, more than 75% of China's urban consumers will earn between $9,000 and $34,000 a year. Compare that to the 4% of the total Chinese population who fell within that range in the year 2000.

The magnitude of China's middle-class growth is transforming the nation. Graphic: Mckinsey

While the growth in Mass Market consumers is helping to drive growth in Macau for MGM Resorts, and over all the company has reported a strong quarter for its overall casino operations, is the company doing well relative to others in the industry?

Comparing MGM to Las Vegas Sands Q1 Earnings
While MGM Resorts did well in Q1, especially with strong growth in Macau, it is not the highest performer in the industry. Las Vegas Sands, which reported on April 24th, showed much stronger growth in Macau, which led the company with higher overall revenue and revenue growth over Q1 2013. Additionally, Las Vegas Sands is still cheaper than MGM on a price to earnings basis.

  MGM Resorts Las Vegas Sands

Net Revenue

12% Growth YoY 21.4% Growth YoY
China EBITDA 33% Growth YoY 49% Growth YoY
Share Price $24.33 $76
P/E (TM) 63 24.4

Las Vegas Sands
reported net revenue during Q1 2014 of a record $4.01 billion, up over 21% YoY. Additionally, continued strong growth in Macau with nearly 50% EBITDA growth makes it the industry leader so far. While MGM Resorts posted solid results from China operations, it is still earning most of its revenue from U.S. operations, including a struggling Las Vegas and U.S. Northeast region.

Las Vegas Sands, by contrast, has made a much bigger bet on this region, and has clearly won on its Asian bet. This not only includes Macau, but Las Vegas Sands also gains revenue from operations in Singapore, and is a front runner to win a bid for a casino in Japan.

Las Vegas Sands not only beat MGM Resorts on total net revenue and net revenue growth, but continues to beat MGM oen mass market consumer growth as well. While MGM Resorts had a mass-market increase of 45% for the quarter, Las Vegas Sands's mass table win increased 54% YoY, compared to the industry growth rate of an estimated 40%. This is consistent with Las Vegas Sands being the industry leader in mass-market growth over the last few years.

Photo: Las Vegas Sands 2013 10Q presentation

Foolish takeaway
Macau's gaming industry is still growing at incredible rates, and that growth has helped to spur on MGM Resorts during Q1. With strong revenue and mass market increases for the company, MGM investors should not be disappointed. However, in light of the industry standards for growth in gaming, as well as competitors such as Las Vegas Sands posting even more incredible numbers, investors looking to get into one of these companies now need to continue to ask themselves, of the companies gaining on this industry, which is gaining the most. For new investors looking to get in on this market, that does not appear to be MGM.

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Read/Post Comments (7) | Recommend This Article (2)

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 April 29, 2014, at 8:09 PM, 10HighSigns wrote:

    LVS was a turn-around from less than $1.95 not

    many yrs ago. MGM is a turn-around today...if Macau stumbles, Las Vegas, NV will benefit MGM more than any of the other Macau starlets. Growth at home is nothing to sneeze about...

    Guess who the local RevPAR King is?

  • Report this Comment On April 29, 2014, at 10:04 PM, blackjackkid wrote:

    I'd also bet on a smaller company with a market cap of only $12 Bil like MGM over that of LVS with a market cap of over $64 Bil. Both will do well, but on a percentage return basis going forward, I believe MGM will outperform LVS.

  • Report this Comment On April 30, 2014, at 2:34 AM, lazzybum8 wrote:

    For short term price appreciation, try CZR. It is losing money by the billions, and have a huge debt load. Yet, John Paulson will continue to prop it up. Retail people buy it to take advantage of the so call smart money. It is a gamble better than betting on the recovery of Les Vegas, NV. Why ? people visit LV for entertainment. Few people gamble there. Real gamblers go to those casinos near their home. It is everywhere.

    LVS, MPEL, and WYNN are still my bets. I am not sure when the swan will stop. It is always a good time to average down on those three stocks.

  • Report this Comment On April 30, 2014, at 5:34 AM, fundm69 wrote:

    you can't compare apples to oranges. mgm has higher hotel revenues, LVS has higher gambling revenue. So margins look compressed...MGM is areal balanced leisure play and not just a casino operator. When Cotai opens - numbers will almost double, and that's less than 2 years from now. The question is - do you have the patience to wait?

  • Report this Comment On April 30, 2014, at 9:17 AM, pugman323 wrote:

    what a dumb article. The author has no idea what he is talking about. Likely hasn't been to Vegas. MGM now owns that town. SInce business is ramping up in Vegas + giant new Cotai casino under construction + Maryland and Japan.

    THey have much better growth prospects than LVS go forward.

  • Report this Comment On April 30, 2014, at 10:17 AM, ObieJuan wrote:

    How right you are! you should not compare apples and oranges like the fools like to do. LVS completely focused on mac cash cow having some problems in Singapore and just slowly losing in Las Vegas, Penn. and fighting the soon to be accepted online gaming future of our country! They seem to love the Wynn but all info shows VIP's have pulled back. They now have a new legal battle with Okada in Japan. They are having trouble expanding in the US and also don't like internet gaming! MPEL Asian focused and seems to be doing better then the fool's will give them credit for. This bring us to MGM. I suggest that anyone interested in investing in gaming stocks review there current conference call and in my view it shows a positive direction moving forward. As for gaming in Japan if it happens I believe that MGM and LVS have the upper hand but I do not believe it will be as bloated as they predict! JUST ONE MAN'S VIEW! Zombie On Fool's

  • Report this Comment On April 30, 2014, at 10:49 AM, NotFooled wrote:

    It seems every time MGM does well, the fool always tries to compare apples and oranges to make it seem like investors need to worry and that MGM is just fluffing.

    Numerous times the montley fool does this and it seems the readers are realizing this more and more. It's as if the fool is trying to purposely come up with ANY negative information to use against MGM so they can try to sink stock value.

    I do not find this site unbiased and I hope people can actually do some research on their own and realize the montley fool is...well a fool.

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Small town Colorado native, always content with just fresh air, blue skies, coffee, and... a stack of 10Ks.

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8/27/2015 4:01 PM
LVS $47.26 Up +2.08 +4.60%
Las Vegas Sands Co… CAPS Rating: ****
MGM $20.54 Up +0.93 +4.74%
MGM Resorts Intern… CAPS Rating: ***