MGM Resorts (NYSE:MGM) reported earnings on Tuesday, and it wasn't all good news for the gaming giant. The Las Vegas Strip appears to have had a pretty weak fourth quarter and that more than offset gains in Macau. 

But the results were largely overshadowed by the market's bullishness on MGM Cotai's opening and the potential impact of the new resort. Here's a look at earnings and what investors should be watching at this gaming company. 

Slot machine showing all 7s.

Image source: Getty Images.

The big picture

Revenue was up 5.5% for MGM Resorts to $2.6 billion and net income jumped from $24.7 million a year ago to $1.4 billion, or $2.42 per share. But that was driven by a $1.4 billion tax benefit due to the tax law passed in December. Without that, MGM would have reported a loss of $0.10 per share compared to a per-share profit of $0.04 a year ago. 

Adjusted property EBITDA, which investors use as a proxy for cash flow coming from a resort, rose just 0.6% in the quarter to $674.6 million due to some disappointing results at some of MGM's best-known resorts. 

The Las Vegas Strip struggled to end 2017

Digging into the numbers, you get a picture of why MGM Resorts had an underwhelming quarter in what seemed to be a favorable operating environment. Revenue per available room was down 4.9% on the Las Vegas Strip, driven by high-end resorts like Bellagio, MGM Grand Las Vegas, and Mandalay Bay all having both lower average daily room rates and lower occupancy versus a year ago.

Results would have been worse if it wasn't for some good luck on the gaming floor. Table game drop, which measures the volume of play at table games, was $909 million in the fourth quarter, down 4.2% versus a year ago. But that decline was offset by table game win percentage improving from 23.5% to 25.3%. At slot machines, slot handle was down 5.6% to $3.13 billion and slot hold percentage increased 100 basis points to 8.9%. 

The decline in room rates and gaming play indicates the Las Vegas Strip overall had a fairly weak quarter. That's what weighed most on MGM's results. 

One eye on Macau

If you look at the results of competitors like Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS), they were both helped immensely by growth in Macau. MGM is a little different because it had a smaller presence in Macau -- a single resort -- until MGM Cotai opened a few days ago

MGM China's operating income fell from $72 million a year ago to $43 million, although adjusted EBITDA was up 7% to $147 million in the fourth quarter. For the full year, adjusted EBITDA was $520.7 million, which isn't bad for a resort on the Macau Peninsula. 

As MGM Cotai ramps up, I would expect property EBITDA to be higher than the Macau Peninsula property (and with a $3.4 billion price tag, it needs to perform better to make money long term). 

Is MGM stuck in place? 

MGM Resorts is certainly generating a lot of cash, but it isn't growing like it was a few years ago. Macau is becoming more competitive and the Las Vegas Strip just isn't a growth market these days. 

Given the slow growth, investors need to look at MGM's value. Net debt of $11.5 billion and a market cap of $19.6 billion gives us an enterprise value of $31.1 billion, which is nearly 10 times the adjusted EBITDA of $3.2 billion generated in 2017. That's not a bad value, especially given the opening of MGM Cotai, but it isn't a steal in today's market -- particularly if this is the start of a broader decline in Las Vegas.

Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.