Please ensure Javascript is enabled for purposes of website accessibility

MGM Resorts Loses Share in Macau, Pushes Cotai Project Back

By Travis Hoium - Feb 19, 2016 at 3:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A delay in MGM Resorts' next project has investors disappointed today.

MGM Resorts (MGM -2.09%) reported fourth-quarter results on Thursday, and the numbers did nothing to please investors. Shares dropped as much as 9% in Friday trading as Macau results disappointed and the opening of MGM Cotai was pushed back.

Overall, revenue was down 8.1% in the fourth quarter to $2.19 billion, and net loss more than doubled to $781.5 million, or $1.38 per share. The large loss was mostly due to a $1.5 billion writedown of MGM China, which is 51% owned by MGM Resorts. But the details within those numbers are what's worth watching.

The skinny on Las Vegas
Long term, Las Vegas is becoming far less dependent on gaming than it's ever been before, and that continued in 2015. During the fourth quarter, casino revenue from wholly owned domestic resorts fell 5%, but overall revenue was up 2%. Room revenue growth of 10% was a big driver of growth.  

Adjusted EBITDA, a proxy for cash flow from a resort, jumped 15% to $430.7 million for these wholly owned domestic resorts. That's great improvement from a financial standpoint and is the most important figure investors should look at.

This slow and steady performance in Las Vegas has become the norm among gaming operators, and it has helped MGM Resorts remain stable while Macau-focused competitors faltered.

CityCenter finally holding its own
The massive CityCenter resort is also in Las Vegas, but it isn't consolidated because MGM only owns half of the resort. And after years of struggling to justify its $9+ billion price tag, it is now starting to perform mildly well.

Revenue from operations increased 12% in the fourth quarter to $323 million, and operating income was $19.3 million versus a loss of $18.1 million a year ago. Aria was the star in the quarter, increasing revenue per available room 7% to $212 and seeing table game volume jump 12%.

While Las Vegas was steady and CityCenter improved, MGM China struggled along with the rest of the industry.

MGM Cotai is delayed
It's no surprise that MGM China's results were down. Macau's gaming revenue overall was down 27.5% in the fourth quarter; the problem is that MGM underperformed the market.

MGM China's revenue fell 31% to $499 million in the fourth quarter, and adjusted EBITDA dropped 29% to $131 million -- both worse than the market as a whole. But it was a 57% drop in VIP table game turnover that was a real shocker to investors.

The weakness in Macau is a concern, but MGM China has always been able to look forward to MGM Cotai, its first move to the lucrative Cotai region. However, the company announced it would delay the project from a fourth-quarter 2016 opening to an opening near the end of the first quarter of 2017.

This makes some sense given Wynn Palace opening this summer and then Las Vegas Sands' The Parisian opening near the end of the year. The issue is that MGM Cotai needs to start generating revenue as soon as possible to pay for its $3.0 billion construction cost. A delay is a huge disappointment for the company.

The good and bad of MGM Resorts
Las Vegas continues to be the rock-solid foundation of MGM Resorts, and its slow improvement continues. But Macau operations were even worse than anyone expected, and the company lost market share. Until the opening of MGM Cotai and the cash flow that will come from that resort, this is a slow-growth, domestic-focused company, for better or worse.

Travis Hoium owns shares of Wynn Resorts, Limited. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MGM Resorts International Stock Quote
MGM Resorts International
$34.71 (-2.09%) $0.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.