April was a tough month for MGM Resorts International (NYSE:MGM), particularly after the company reported first-quarter earnings. According to data provided by S&P Global Market Intelligence, shares fell 10.3% last month as investors worried about the future of the domestic gaming market.
First-quarter earnings were released late in the month, and they didn't show a strong trend for revenue in Las Vegas. Revenue in the U.S. fell 1.1% to $2.1 billion, and revenue per available room in Las Vegas was down 4.3% to $150 per night. People are still avoiding Mandalay Bay months after the tragic events that took place there in October, and neighboring Luxor saw revenue decline as well.
The bright spot was in Macau, where MGM Resorts opened MGM Cotai in February. Overall, revenue in Macau was up 25% to $596 million, and adjusted property EBITDA, a proxy for cash flow from a resort, increased 5% to $152 million.
Investors weren't happy with the results because they were expecting more from Las Vegas. Dropping room rates can be a sign that there's weak demand in the city, and it was a bit surprising that management also lowered full-year revenue-per-available-room growth guidance by 100 basis points to 1%-3%. If the guidance reduction is an indication that overall demand in Las Vegas will be down, it could be bad for 2018's earnings overall.
Even though results for the first quarter weren't as strong as expected, there's a lot to like about MGM Resorts' business right now. The resort in Cotai should be one of its most profitable in the portfolio when it gets to full operation in the next few years, likely generating over $500 million per year in property EBITDA. Domestically, the company is expanding into regions like Washington, D.C., and Massachusetts that will diversify sources of revenue. As demand for entertainment grows around the world, MGM Resorts is well positioned to benefit, even if there were a few minor flaws in its first-quarter results.