MGM Resorts Actually Gained 15.8% in the Second Half of 2022. Is the Worst Over?

What happened

Shares of MGM Resorts International (MGM 0.02%) surged 15.8% in the second half of 2022, according to data from S&P Global Market Intelligence. The casino operator that owns the MGM, Aria, Luxor, and Bellagio hotels in Las Vegas saw a continued recovery from the COVID-19 pandemic in late 2022 along with other green shoots from smaller business lines. As of this writing, shares of the stock are actually up above pre-pandemic levels and up 14.5% in the last five years.

So what

2022 was the year the United States economy fully reopened. This led to a resurgence of visitors to tourist destinations like Las Vegas, with an estimated 37 million people said to have visited the city last year, compared to 42 million people in 2019. The Vegas economy is almost fully back in the swing of things.

This is showing up in MGM's financial statements. Casino revenue was up 36% year over year last quarter, while hotel revenue was up an astounding 83% year over year, leading to total revenue of $2.3 billion in the period. Right now, people are ready to get back to gambling and vacationing in Las Vegas, and they are doing so in full force.

A resurgence in guests has led to a recovery in MGM's cash flow, which looked bleak during the heart of the pandemic. Free cash flow, the best measure of profitability for a business, was over $1 billion in the last 12 months after getting down close to an outflow of $2 billion in 2020.

And this is as MGM's business in China is still ground to a halt, which is a major headwind right now. However, MGM looks to be in luck as the Chinese government just reopened its economy from major lockdowns from the COVID-19 pandemic. In the coming quarters, as people start traveling around the world again, it will not only benefit the MGM China business, but will help foreign tourists visiting Las Vegas. Investors likely took the news of the economy reopening in China as a bullish signal for the stock.

Lastly, MGM has succeeded mightily with its BetMGM mobile application as online gaming and sports betting slowly gets legalized around the United States. The app is now in 24 markets and surpassed $1 billion in revenue for the first nine months of this year. It is unclear how large this business will get over time but seems to be showing tons of promise in the hypercompetitive online gambling market. 

Now what

MGM stock had a solid 2022 even with the broader market doing poorly. With the resurgence of Las Vegas, a reopening in China, and the success of BetMGM, the business looks to be in a great spot right now. I wouldn't be surprised if things went smoothly for MGM shareholders in 2023 and for the next few years.