Hospitality and casino entertainment company MGM Resorts (NYSE:MGM) reported Q4 FY2023 results topping analysts' expectations, with revenue up 21.8% year on year to $4.38 billion. It made a non-GAAP profit of $1.06 per share, improving from its loss of $1.53 per share in the same quarter last year.
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MGM Resorts (MGM) Q4 FY2023 Highlights:
- Revenue: $4.38 billion vs analyst estimates of $4.14 billion (5.8% beat)
- EPS (non-GAAP): $1.06 vs analyst estimates of $0.71 (49.7% beat)
- Free Cash Flow of $387.2 million, down 20.1% from the previous quarter (beat vs. expectations of $234 million)
- Gross Margin (GAAP): 46%, down from 48.8% in the same quarter last year
- Market Capitalization: $16.06 billion
"Our Las Vegas Strip Resorts and MGM China set new all-time records for full year and fourth quarter Adjusted Property EBITDAR," said Bill Hornbuckle, Chief Executive Officer and President of MGM Resorts.
Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.
Casinos and Gaming
Casino and gaming companies that offer slot machines, Texas Hold ‘Em, Blackjack and the like can enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits-have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casino and gaming companies may face stroke-of-the-pen risk that suddenly limits what they do or where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing casino and gaming companies to adapt to keep up with changing consumer preferences such as being able to wager anywhere on demand.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. MGM Resorts's annualized revenue growth rate of 6.6% over the last five years was weak for a consumer discretionary business. 
Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. MGM Resorts's annualized revenue growth of 29.2% over the last two years is above its five-year trend, suggesting some bright spots.
We can better understand the company's revenue dynamics by analyzing its most important segments, Casino and Las Vegas, which are 50.4% and NaN% of revenue. Over the last two years, MGM Resorts's Casino revenue (Poker, sports betting) averaged 24.6% year-on-year growth while its Las Vegas revenue (hotels, dining) averaged 83.1% growth.
This quarter, MGM Resorts reported remarkable year-on-year revenue growth of 21.8%, and its $4.38 billion of revenue topped Wall Street estimates by 5.8%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, MGM Resorts has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 9.4%, subpar for a consumer discretionary business.
MGM Resorts's free cash flow came in at $387.2 million in Q4, equivalent to a 8.8% margin and up 238% year on year. Over the next year, analysts predict MGM Resorts's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 10.9% will decrease to 6.9%.
Key Takeaways from MGM Resorts's Q4 Results
We were impressed by MGM Resorts' revenue, EPS and free cash flow beats. On the other hand, its operating margin missed. Guidance was not given as part of the earnings release. Overall, we think this was a solid quarter. Investors were likely expecting more, however, and the stock is down 2.1% after reporting, trading at $44.7 per share.
So should you invest in MGM Resorts right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.