MGM Resorts (NYSE:MGM) Delivers Strong Q4 Numbers

Full Report / February 13, 2024

Hospitality and casino entertainment company MGM Resorts (NYSE:MGM) announced better-than-expected results in Q4 FY2023, 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.

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

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.

MGM Resorts was established to be more than a casino operator, aiming to offer comprehensive entertainment and hospitality experiences. This ambition led the company to create destination resorts that blend casino gaming with a full spectrum of resort amenities, including massive pools and all-you-can-eat buffets.

MGM Resorts operates a diverse property portfolio with destinations around the world. The company serves a broad audience, including leisure travelers, gaming enthusiasts, business professionals, and event organizers.

MGM Resorts has also adapted to the online age by introducing digital casino games that can be played from your phone along with a digital sportsbook, BetMGM. It generates its revenue from casino games, sports betting, hotel stays, dining, entertainment, and convention services.

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.

Competitors in the casino and hospitality industry include Caesars Entertainment (NASDAQ:CZR), Las Vegas Sands (NYSE:LVS), and Wynn Resorts (NASDAQ:WYNN).

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. MGM Resorts's annualized revenue growth rate of 6.6% over the last five years was weak for a consumer discretionary business. MGM Resorts Total RevenueWithin 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 dig even further into 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.

Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

MGM Resorts has done a decent job managing its expenses over the last eight quarters. The company has produced an average operating margin of 11.6%, higher than the broader consumer discretionary sector. MGM Resorts Operating Margin (GAAP)

This quarter, MGM Resorts generated an operating profit margin of 9.6%, up 9.6 percentage points year on year. This increase indicates the company was more efficient with its expenses over the last quarter, spending less money in areas like corporate overhead and advertising.

Over the next 12 months, Wall Street expects MGM Resorts to become less profitable. Analysts are expecting the company’s LTM operating margin of 11.7% to decline to 10.7%.


Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability and efficiency of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions. MGM Resorts EPS (Adjusted)

Over the last five years, MGM Resorts's EPS grew 185%, translating into an astounding 23.3% compounded annual growth rate. This performance is materially higher than its 6.6% annualized revenue growth over the same period. There are a few reasons for this, and understanding why can shed light on its fundamentals.

A five-year view shows that MGM Resorts has repurchased its stock, shrinking its share count by 35.7%. This has led to higher PER share earnings. Taxes and interest expenses can also affect EPS growth, but they don't tell us as much about a company's fundamentals.

In Q4, MGM Resorts reported EPS at $1.06, up from negative $1.53 in the same quarter a year ago. This print beat analysts' estimates by 49.7%. Over the next 12 months, Wall Street expects MGM Resorts to perform poorly. Analysts are projecting its LTM EPS of $2.73 to shrink by 14.8% to $2.33.

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 Free Cash Flow Margin

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%.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).

MGM Resorts's five-year average return on invested capital was 9.9%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Unfortunately, MGM Resorts's ROIC over the last two years averaged a 1 percentage point decrease each year. In conjunction with its already low returns, these declines suggest the company's profitable business opportunities are few and far between.

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.

Is Now The Time?

MGM Resorts may have had a good quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of MGM Resorts, we'll be cheering from the sidelines. Its revenue growth has been a little slower over the last five years, and analysts expect growth to deteriorate from here. And while its EPS growth over the last five years has been fantastic, unfortunately, its projected EPS for the next year is lacking.

MGM Resorts's price-to-earnings ratio based on the next 12 months is 19.6x. While we've no doubt one can find things to like about MGM Resorts, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $54.72 per share right before these results (compared to the current share price of $44.70).

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