MGM Resorts International

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

MGM Resorts International is a global entertainment and hospitality company, known for its large-scale resorts and casinos.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview MGM Resorts International is a global entertainment company primarily known for its extensive portfolio of resorts and casinos. The company’s operations are segmented into three primary areas: Las Vegas Strip Resorts, Regional Operations, and MGM China. This segmentation reflects its diverse geographical footprint and business activities.

  • Las Vegas Strip Resorts: This segment includes iconic properties like Bellagio, MGM Grand, Mandalay Bay, The Mirage, Luxor, New York-New York, Excalibur, Park MGM, and The Cosmopolitan of Las Vegas. These resorts generate revenue from casino gaming, lodging, food and beverage, and entertainment. These properties have a high market recognition and are the most important for MGM.

  • Regional Operations: These casinos are located in US states, including Michigan, Mississippi, New Jersey, Maryland, Ohio, and New York. These properties offer similar services to the Las Vegas Strip Resorts, but on a smaller, more geographically dispersed scale. They include MGM Grand Detroit, Beau Rivage, Borgata, MGM National Harbor, MGM Northfield Park and MGM Springfield.

  • MGM China: This segment comprises of MGM China Holdings Limited (MGM China) and its subsidiaries, which operate gaming facilities in Macau. The two primary properties under this segment are MGM Macau and MGM Cotai.

Industry Trends & Competitive Landscape The global gaming industry is intensely competitive, with companies vying for market share. MGM Resorts faces competition from other established casino operators like Caesars Entertainment, as well as new entrants in the online gaming space. The trends that have influenced MGM and its peers are the continuous shift to online gaming and the desire to have a physical casino presence.

Key trends in the gaming industry include:

  • Growth in online gaming: A significant shift toward digital and online platforms.
  • Consolidation: An increase in mergers and acquisitions that are restructuring the industry landscape.
  • Focus on experiential offerings: A growing importance of non-gaming attractions.
  • Increased regulatory scrutiny: In different jurisdictions.

What Makes MGM Unique? MGM’s competitive advantage is derived from:

  • Iconic brands and properties: Its portfolio of renowned resorts on the Las Vegas Strip allows for greater customer traction and visibility.
  • Geographic diversification: MGM’s presence in different markets provides protection to its revenues, and also helps in understanding different consumer preferences.
  • Customer loyalty programs: MGM Rewards, a loyalty program, keeps regular customers in the loop.
  • A wide array of operations: MGM’s business operations encompass more than just the casinos, adding other sources of revenue.

Financial Performance and Analysis MGM has shown fluctuations in its financials due to various factors. While the company’s revenue from Las Vegas has increased, it’s been offset by some operational issues. Let’s analyze:

Income Statement Analysis

  • Revenue: MGM’s revenue has experienced growth, primarily driven by the Las Vegas Strip Resorts. Total revenues in 2023 were at $16.1 billion, which represents a growth over 2022.
  • Operating income: Their operating income in 2023 was $2.4 billion, which is up from the previous year. This increase is primarily due to higher revenue and controlled operating costs in most segments.
  • Net income: MGM’s net income has greatly increased in 2023 at $1.4 Billion compared to a net loss of $1.3 billion in 2022. This significant turnaround was due to higher revenue, controlled operating costs, and one-time gains.

Balance Sheet Analysis

  • Assets: At the end of 2023, MGM’s total assets stood at $37.2 billion with property and equipment at $13.2 billion. These figures suggest they’re a capital-intensive business. Intangibles are at $3.4 Billion, as many acquisitions have been completed in recent history.
  • Liabilities: The company’s total liabilities at $20.8 billion indicate a significant level of debt. They have long-term debt of $12.1 billion. In the past several months they have also taken on large amounts of lease obligations.
  • Equity: Total equity is $16.4 billion. Book value of equity is at 6.16 per share. The company was selling for roughly 50 dollars per share in late 2023.

Cash Flow Analysis

  • MGM’s cash flow from operations was positive in 2023 which was a large improvement over 2022.

  • The company’s investing activities includes significant capital expenditures and acquisitions.

Recent Concerns and Controversies MGM has faced a range of challenges including:

  • Cybersecurity breaches: The company has faced multiple cybersecurity attacks that have affected its data and its operations.
  • Labor disputes: Employee negotiations and contracts have been points of contention.
  • Market instability: The stock market can cause problems with MGM stock that makes investors worried.
  • Geopolitical Risks: MGM’s operations in China are subject to changes in local political conditions that are hard to predict.
  • Increased competition: Rise in online gaming companies threatens revenue and margins.
  • Inflationary Pressures: Higher input costs and wages may create margin pressure in the future.

Management’s Perspective In recent earnings calls, the management has highlighted the following key takeaways:

  • Continued focus on Las Vegas Strip: They’re keen to develop the most out of the company’s presence in Las Vegas.
  • Growth in Digital Operations: The company is aggressively trying to grow in online gaming.
  • Disciplined Capital Allocation: Management is keen on reducing debt and finding investments that give a return.
  • Controlling Costs and Increasing Efficiency: Several initiatives have been undertaken to increase revenues and cut costs.

Moat Rating: 2 / 5 MGM’s moat is rated a 2 out of 5. A weak-moat rating. The company has some competitive strengths, particularly its presence in key markets, scale of its operations and the strength of its brands. However, it faces intense competition and is vulnerable to industry and technological disruptions. Its brand provides a limited moat that is threatened by competitors. It doesn’t possess strong cost advantages over its competitors and also its network effect isn’t that strong. While MGM is in a fairly good position to generate reasonable profits, their margins can be pressured by competition, both offline and online.

Legitimate Risks That Could Harm the Moat & Business Resilience:

  • Technological Disruption: The rapid growth of online gaming and its ability to supplant physical casinos is a major concern, and is very hard to overcome.
  • Increased Competition: Intensifying competition and price wars with established players or aggressive entrants might limit profitability.
  • Macroeconomic Headwinds: Economic downturns can severely affect consumer spending and reduce the revenue from discretionary spending.
  • Regulatory Changes: Changes in gaming regulations or increased taxation can significantly harm profitability and expansion efforts.
  • Debt Burden: A high level of debt can limit their flexibility to expand and can lead to increased interest expenses.
  • Failure to sustain high ROIC: The inability to consistently generate high return on invested capital will decrease the value of the company.
  • Geopolitical Instability: Political or regulatory instability in key operating countries, such as China, may lead to operational and legal problems.

Understandability Rating: 3 / 5 MGM’s business is moderately complex, warranting a 3 out of 5 for understandability. While the nature of the hospitality and gaming sectors are easy to understand, the complexities of MGM’s specific segments—including their financials, capital structure, and international operations—make a full understanding challenging to those outside the industry.

Balance Sheet Health Rating: 3 / 5 MGM’s balance sheet health is rated 3 out of 5. It’s got assets worth a lot of money, but is burdened with debt and liabilities. This balance of positive and negative factors makes it a mixed picture of the company’s financial health. In particular, the company’s high debt load needs to be managed well for long-term sustainability.