I foolishly thought that somehow MGM Resorts International (NYSE:MGM) might escape the same fate that has befallen Las Vegas Sands Corp. (NYSE:LVS) and Wynn Resorts, Limited (NASDAQ:WYNN) as far as results out of Macau.
Alas, MGM stock rolled snake eyes like everyone else.
This is mostly due to Macau, where the story is that anti-corruption crackdowns have been harming business. It just makes me wonder, if revenues are so badly hit, just how many regular people go to Macau? Is it all just corrupt rich people?
Others suggest it just the Chinese economy, which has slowed down considerably, and the “whales” just aren’t spending like they used to. Another opinion is that smoking bans are scaring away people, along with tighter visa restrictions.
Maybe it’s all of the above.
In any event, MGM earnings were depressing. Revenue of $2.4 billion was down 5% and missed analyst forecasts by about $40 million. Adjusted property earnings before interest, taxes, depreciation, and amortization (EBITDA) was $555 million, down a depressing 8.9% from the previous year.
Breaking out the data on MGM earnings gives you a clearer picture of how bad it is at MGM China. Revenue declined 22% year over year to $719 million. Digging deeper, we find that main floor table games revenue increased 19% even though volume decreased 4%. But the key is the 39% decline in VIP table games revenue.
Adjusted EBITDA fell 22% year over year to $185 million.
So that’s a third of operations in China that got hammered. Let’s look at the MGM stock as far as the U.S. is concerned.
MGM stock owns many Vegas casinos, not just the flagship green one on the Strip. There, revenue was actually up 5%. Room revenues were up 6%, which is very much in line with the rest of the hospitality industry. Revenue per available room was up 7% and that’s where that 6% increase came from. Along with more people come more sales of food and beverage, where revenues were up 6%.
Here, adjusted property EBITDA increased 5% year over year to $373 million. Not bad for MGM earnings.
Over at City Center, the massive development that managed to get underway in serious fashion just as the financial crisis hit, things were not as rosy. CityCenter splits its revenues into resort and residential divisions, since it pretty much describes how the operation runs.
Total revenue declined 5.8% from last year to $296 million as resort revenues fell 4.2% to $289 million, and revenues in the residential division fell – ugh — 44% to $7 million. That almost makes it sound like City Center is a ghost town.
Its adjusted EBITDA fell 21% year over year to $68 million.
So this all trickles down to a crappy bottom line for MGM earnings, as full year earnings were 48 cents per share in 2014. The good news is that is actually a big move from last year’s 20 cents, so all is not lost.
So, do you buy MGM stock here at $22 per share?
Look, I have been pooh-poohing MGM forever. The CityCenter fiasco, which isn’t MGM stock’s fault because timing destroyed the whole project, has burdened the company with more than $13 billion in debt. Free cash flow never exceeds a billion dollars. And yet, MGM stock is up 111% over the past five years. So what do I know?
To me, I wouldn’t buy MGM stock here. I think LVS is better positioned at this point as a long-term investment.
As of this writing, Lawrence Meyers did not own a position in any of the aforementioned securities.
