We last bought casino and resort operator MGM Resorts International (MGM) in July 2020, and sold 2 months later for a 40% gain, recalls buyback specialist David Fried, editor of the aptly named, The Buyback Letter.
MGM is an S&P 500 global entertainment company with 32 U.S. and international properties. In the U.S., venues range from Maryland to Massachusetts, Michigan, Mississippi, Nevada (it owns half the casinos on the Vegas Strip), New York, and Ohio.
In China, MGM resorts are in Macau (the largest gaming destination in the world), Cotai and Diaoyutai, and the group is bidding on a gaming license in Japan. Its very recognizable brands include Bellagio, MGM Grand, Mandalay Bay, ARIA and Park MGM.
The company also has a 50/50 venture, BetMGM LLC, that offers U.S. sports betting and online gaming through brands such as BetMGM and partypoker.
Although the pandemic shut down resorts like MGM’s in 2020, gambling didn’t end, Las Vegas didn’t go away and MGM had a cash reserve to see it through. Now, as Americans are beginning to emerge from being cooped up in 2020 and much of 2021 and are able to travel more freely, they seem ready to splurge on events and travel.
For example, MGM Resorts said attendance of key conferences like the CES tech conference in January was hurt by the Omicron variant, but after a brief decrease, the company’s forward hotel bookings are back above pre-pandemic levels. And MGM’s 65-and-over crowd has now reached pre-pandemic levels for room nights. The company sees more domestic visitors coming in the year ahead.
MGM is likely to benefit from an expansion in sports betting, pent-up consumer demand and high domestic casino spend. The company said 14 of its 17 domestic properties witnessed either all-time or fourth-quarter margin records. In Las Vegas, the company’s revenues are back to normal due to leisure and domestic casino customers.
MGM has also emphasized monetizing its real estate assets to bolster cash, and making some strategic purchases, including selling MGM Growth Properties (MGP) to VICI Properties (VICI) and selling The Mirage to Hard Rock — while buying the hotel operations of The Cosmopolitan of Las Vegas and building the first casino resort in Osaka, Japan.
As noted, 2020 was a nightmare, with earnings getting hammered in the first two quarters when casinos closed and sales dropped 91% in Q2. MGM trimmed the bleeding somewhat in Q3 of that year, and revenue ultimately came in 66% below the prior year.
Fast forward to now: MGM reported better-than-expected Q4 2021 adjusted EPS of 12 cents on sales of $3.1 billion, net revenue at Las Vegas Strip casinos and resorts soared 277% year over year to $1.8 billion, net revenue at regional casinos jumped 51% vs. the prior-year quarter to $900 million and MGM China net revenue rose 3% compared to the year-ago quarter to $315 million. (Q1 2022 will be released on May 2.)
In fact, the gambling industry as a whole seems to be snapping out of stagnancy. The Las Vegas Strip reported a record $7.1 billion in gambling revenue in 2021 despite a slow start to the year. Q4 saw $2.1 billion in revenue, a pace of $8.4 billion annually. Businesses have started again to plan conventions and in-person gatherings, so corporate spending is only expected to increase.
In March the board authorized a new $2 billion share buyback. "We remain committed to our capital allocation strategy and continue to believe that returning cash to shareholders is a highly productive use of our capital," said CFO Jonathan Halkyard. In the last 12 months, management has reduced shares outstanding by 12.055%.