🎰 How Did MGM Outperform Peers In 2021?
Didi's revenue hurt by regulatory crackdown.
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🤘 The 10 Trends of 2021
What a year this has been😅! As 2021 comes to a close, we bring you the 10 trends that shaped the financial markets this year. From meme stocks to SPACs, 2021 was a year like none before.
🎰 MGM Resorts: Standing Tall In Ruins?
The pandemic has taken its toll on casino stocks this year. Stocks like Wynn Resorts (WYNN) and Las Vegas Sands (LVS) are down over 30% for the year. However, one player has not only outperformed its peers but also given positive returns this year. (Tweet This)
The eminence of Las Vegas or Monaco as gambling destinations is eclipsed by Macau by a mile. Casinos in the Macau Special Administrative Region rake in annual revenue of over $37B. That’s 5X the revenue of the entire Las Vegas strip! So it’s no surprise that operators such as Wynn Resorts and Las Vegas Sands generate more than half of their overall revenue from Macau.
In September this year, the government of Macau SAR launched a review of the Macau Gaming Law. Proposed changes included employee protection and restricting the profit distribution to the shareholders. Further, it was proposed that government officials would be supervising the casinos. There was also the distinct possibility that casino licenses wouldn’t automatically be renewed.
All these sudden changes being contemplated on the back of the protests in Hong Kong and the regulatory scrutiny of the largest tech companies was enough for the shareholders to press the panic button. Shares of casino operators, particularly those with large exposure to Macau, tanked.
Last week, China’s Gaming Inspection and Coordination Bureau indicated that the license renewal process would not be disrupted. However, the other items, namely, dividend regulation, having government representatives managing day-to-day operations, and employee protections, would stay.
The damage was done. Wynn Resorts is down 18% this year. Las Vegas Sands sank 35%. Penn National Gaming pegged back 37%. However, the one stock that has managed to outperform all of its peers is MGM Resorts (MGM), which has managed to return 52% to its shareholders this year. How come?
The Roaring Lion
Unlike its peers, MGM has a relatively lower dependence on Macau. For Q3 2019 (pre-pandemic), Macau contributed 22% to MGM’s top line. Two years later, Macau’s share in MGM’s revenue is a paltry 10%, with Las Vegas contributing to nearly half of the total revenue.
Even if the business is not back to pre-pandemic levels, MGM is making more money than it ever has at its casinos. Adjusted EBITDA in Las Vegas for Q3 2021 stood at $535M, a growth of 21% from Q3 2019. Regionally, the number rose to $348M, up 29% from two years ago. The company instituted cost-cutting measures during the pandemic, but costs didn’t keep pace with revenues.
You know the pandemic’s influence is complete when a casino goes digital. MGM’s JV with Entain Holdings created BetMGM, a leading sports betting platform. MGM is now trying to buy its partner out and retain sole entity ownership. BetMGM today has a 32% market share in iGaming, and is the second-largest online betting app in the US in terms of revenue, ahead of DraftKings.
Separately, MGM is selling the Mirage, the first megaresort of the Las Vegas Strip, to Hard Rock International for ~$1.1B in cash. The company’s JV with ORIX also recently won a bid to be an integrated resort partner for the Osaka region in Japan.
At $10B, the development plan on a 121-acre portion of Yumeshima island in 2022 will be one of the costliest resorts ever built globally. Once complete, the resort expects to employ nearly 15K people and service over 20M annual visitors.
Gambling with casino stocks may not have paid off for investors, but MGM has certainly managed to stand tall this past year in the ruins in the wake of the Macau meltdown. Whether the iconic lion will continue to roar in 2022 is anybody’s guess.
MGM ended at $44.49, up 0.61%. Shares are up 50% this year.
Company Snapshot 📈
MGM $44.49 +0.27 (0.61%)
Analyst Ratings (17 Analysts) BUY 47% HOLD 47% SELL 6%
Impact: Didi revenue falls as China's regulatory crackdown hits business (DIDI -8.18%)
Boost: Victoria's Secret shares rise on share buyback plans, holiday sales growth (VSCO +12.19%)
Rise: Morgan Stanley to boost stake in China brokerage to 94% (MS -1.24%)
Today's Market Terminology: Default Risk
Default risk is something that an issuer of a bond may be unable to make timely principal and interest payments. It is also referred to as credit risk
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