MGM Resorts International (NYSE:MGM) has been as hard hit by COVID-19 as anyone. Its properties were shuttered globally and its revenues abruptly disappeared.
While the pandemic has undeniably created a historically painful demand shock for MGM's business, the longer-term picture remains intact. Here, we dive into where MGM looks to be headed five years from now.
A recovering casino footprint
COVID-19 halting casino operations makes balance sheet health all the more vital for enduring these tough times and even making it to 2025. As of its last quarter, the company had $4.8 billion in cash and equivalents on its balance sheet, and total liquidity of $8.1 billion including credit. That is more than any of its competitors, and provides the company with a cushion to survive in a zero-revenue environment for several quarters. Fortunately, zero revenue is an overly pessimistic forecast.
During MGM's most recent quarter (ending June 30, 2020), it began opening its properties back up across the United States. The executive team alluded to how encouraged it was with the initial response from consumers several times during the recent call.
Its properties in Macau and Shanghai are also open once more. Occupancy restrictions have been placed on all of MGM's properties -- as with the rest of its competition -- but getting the properties back open was certainly the first step toward a recovery. The performance of MGM's brick-and-mortar properties will surely take some time to mend, but for long-term investors with a five-year time horizon, even more help is approaching.
Leading infectious disease expert Dr. Anthony Fauci consistently restates his belief in a coronavirus vaccine by early 2021. Under that scenario, it's feasible to think MGM's properties could continue their march to recovery. With the mortality risk from COVID-19 vastly reduced by an inoculation, consumers should feel more comfortable going about their normal lives whenever one is approved and distributed.
A growing online presence
Regardless of when this slow move to normalization takes hold, MGM is taking success into its own hands. We are in the early days of its online offerings; to date the company operates BetMGM -- its online casino product -- in Colorado, Indiana, Nevada, New Jersey, and West Virginia to date. It plans to roll this product out in more states over the coming years to solidify online casino market share.
MGM is no software expert, so to most effectively build out online offerings, it enlisted the help of InterActiveCorp (NASDAQ: IAC). As a reminder, IAC recently spun off Match.com, the parent of Tinder, Hinge, and several more dating applications. While online gambling and dating are far from synonymous, IAC's reputation of creating thriving digital apps is a welcome skill for MGM, and IAC's $1 billion equity stake in MGM depicts its confidence in the newly announced partnership. The future of gambling is online and on our mobile devices, and this partnership is ideal for tapping into that distribution channel.
Beyond the help IAC will provide to MGM's online casino offerings, the boost it will give to yet another MGM pursuit is just as clear. 22 states and Washington D.C. have legalized sports gambling since the Supreme Court ruled to remove that decision-making power from the federal government in 2018. With illicit sports gambling generating an estimated $150 billion in annual revenues, the approaching end to prohibition is truly a giant opportunity for companies like MGM.
Legalization of online gambling across the globe is expected to power an 11.5% growth annually in global online gambling over the next five years.The combination of MGM's brand plus IAC's digital know-how truly is a compelling recipe for achieving success.
Sports gambling's future is predominantly in mobile applications, IAC's sweet spot. This unique duo is ideal in a crowded field featuring all of the traditional casino operators, as well as new-age companies such as Barstool Sports (owned partially by Penn National Gaming) and DraftKings -- both born on the internet.
To MGM or not to MGM
While 2020 will not be a good year for MGM, I believe five years from now the company will be enjoying much rosier results. Its casino footprint meshes well with a dive into online gambling to create an omni-channel approach to betting, and IAC is an ideal partner to help realize that vision. In terms of sports gambling stocks to own for the next five years, MGM is a great bet.