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    MGM Resorts International (MGM)

    Q4 2023 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$36.73October 1, 2023
    Final Price$44.68December 31, 2023
    Price Change$7.95
    % Change+21.64%

    What went well

    • Management expects to grow full-year EBITDA in 2024 despite headwinds, indicating strong confidence in the company's growth prospects.
    • Macau operations are performing exceptionally well, with January performance exceeding October levels across all segments, and visitation reaching 90% to 95% of 2019 levels, signaling strong recovery in the region.
    • The company reduced outstanding shares by 14% in 2023 through share repurchases and continues to see value in further buybacks, enhancing shareholder value.

    What went wrong

    • Labor cost increases, including new labor agreements in Las Vegas, are expected to increase operating expenses by low to mid-single-digit percentages, potentially pressuring margins in 2024.
    • Regional market challenges: MGM's regional properties experienced a $60 million decline in Q4 due to a strike and a high-end customer not returning, indicating vulnerabilities and potential margin pressure in regional markets.
    • In Macau, despite record revenues, MGM lacks a large retail segment that competitors have, which negatively impacts margins, and increasing promotional expenses ("contras") may further pressure profitability.

    Q&A Summary

    1. 2024 EBITDA Growth
      Q: Can you grow full-year EBITDA this year?
      A: Management believes they can surpass last year's EBITDA despite tough comparisons. They have budgeted for EBITDA growth, with incentives aligned accordingly. While acknowledging some headwinds, particularly in labor costs, they are optimistic about achieving growth, albeit not in double digits.

    2. BetMGM Profitability Timeline
      Q: Is 2024 an investment year for BetMGM?
      A: Yes, 2024 will be a reinvestment year for BetMGM, focusing on improving product offerings. Management expects to see some profitability in 2025 and anticipates a very strong year in 2026. They aim to enhance their product, particularly in parlays and speed to market, and emphasize that this year is critical for focus on product development.

    3. Share Buyback and Leverage
      Q: What's the buyback pace and leverage outlook?
      A: MGM repurchased 14% of outstanding shares in 2023 but does not expect to continue at that pace in 2024. Management remains active in the market, finding shares attractively valued. The upper bound of leverage is 4.5x lease-adjusted, and they are currently a full turn below that, providing room for continued but potentially reduced buybacks this year.

    4. Las Vegas Hold Impact
      Q: How did higher hold affect Q4 Las Vegas?
      A: Higher hold positively contributed to the results but management is cautious about quantifying the impact due to various offsets like player-related expenses. They acknowledge experiencing good hold in the fourth quarter but highlight that the nature of play and associated expenses make the concept of normal hold different in this context.

    5. Macau Margins and Expenses
      Q: Were Q4 Macau expenses elevated; is this sustainable?
      A: Q4 Macau saw an increase in expenses partly due to investments in events like concerts to drive tourism, aligning with their $1.1 billion ten-year commitment in operating expenses. Management expects margins to remain stable in the high 20% range and believes expenses will be quite stable over the next couple of quarters.

    6. Capital Allocation and Growth Projects
      Q: Criteria for $1B earmarked for growth projects?
      A: MGM is focused on building its own digital business, including acquisitions like LeoVegas and Push Gaming. They are also expanding internationally, looking at opportunities like Brazil's upcoming internet gaming market. Management is committed to staying focused on digital growth, and potential acquisitions will be evaluated accordingly.

    7. Regional Market Trends
      Q: Is the core regional customer stable?
      A: Yes, management reports that players are stable across all age groups and spending levels. January declines were attributed to weather, particularly in properties like Springfield and Empire. They are positive about February and view the January impact as weather-related rather than indicative of a consumer trend.

    8. Las Vegas Core Properties Growth
      Q: How will core properties grow in 2024?
      A: Growth in legacy properties will be limited and is a small percentage of Vegas revenue. The convention mix and citywide events will help, but the luxury properties will see more significant benefits. Overflow from increased convention business may aid properties like Luxor and Excalibur, but overall growth at core properties will be modest.

    9. Macau Contra Revenues
      Q: Will contra revenues remain at 21–22%?
      A: Yes, the reinvestment rate has been stable over the quarters at around 21–22%. Management expects this level to maintain as long as the current business mix continues.

    10. Potential CapEx Due to A's Stadium
      Q: How will the A's stadium affect CapEx plans?
      A: The potential A's baseball stadium may lead MGM to invest capital into adjacent properties, especially MGM Grand. They see an opportunity to refresh and reprogram the front end of the property to connect with the stadium, but are waiting for more details before making decisions.

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