Up by an impressive 38% year to date, MGM Resorts International (MGM 1.26%) stock has performed well so far in 2023. The large-cap hotel and casino operator is riding high on the success of its Las Vegas properties, which have already far surpassed pre-pandemic levels. A possible resurgence in Asia could help power its next leg of long-term growth.
Las Vegas is leading the recovery
Like many tourism-related industries, in-person gambling was seriously impacted by the lockdowns and movement restrictions of the COVID-19 pandemic. But MGM Resorts was well-positioned for the crisis because of the leaseback sale of its Bellagio casino in 2019. The well-timed deal gave the company $4.25 billion in cash, so it didn't need to rely on huge amounts of debt to navigate those challenging times.
Now, business is booming. Fourth-quarter net revenue jumped 18% to $3.6 billion based on record growth in Las Vegas, which is up by 27%. The company is solidifying its position in this key market through the acquisitions of new properties, such as The Cosmopolitan, which was acquired for $1.63 billion in May 2022. That said, MGM's U.S. success is somewhat dampened by its underperforming Chinese operation.
Asia is changing from a tailwind to a headwind
MGM China's fourth-quarter revenue fell 44% to $175 million. And this number is a far cry from the $727 million generated in 2019 -- before the coronavirus pandemic. China's zero-COVID policy led to an extremely slow recovery in its Macao gambling industry. But these lingering headwinds could be changing into tailwinds. In late 2022, the country abruptly scrapped most of its restrictions, and the results are beginning to show in its long-suffering gambling industry.
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According to Bloomberg, Macao's February casino revenue rose 33% year over year to $1.3 billion, following a jump of almost 83% in January. While sales are still less than half their pre-pandemic levels, the growth will almost certainly reflect in MGM's earnings because its Chinese business owns high-profile casino resorts such as the MGM Cotai and the MGM Macau in the tourism-dependent city.
Over the longer term, MGM's Asian ambitions extend outside of just China. The company is working with joint venture partner Orix to potentially build an integrated resort in Osaka, Japan. If approved, the project could go live in the second half of the decade, boosting MGM's growth while giving the company more diversification outside the U.S. and China.
MGM Stock is a buy
With business booming and plenty of growth drivers to keep the ball rolling, there is much to love about MGM. But management sweetens the deal by returning value to shareholders. While the company no longer pays a dividend, its board authorized a new $2 billion share buyback in February, following $2.8 billion worth of shares repurchased in 2022.
While buybacks may not feel as tangible as cash dividends, they increase the fundamental value of a company's shares relative to its earnings and cash flow. They also have tax benefits. Unlike dividends, which are taxed like regular income, investors don't have to pay tax on the value they gained through buybacks until they finally sell the stock.
