I’m taking advantage of today’s drop in shares of MGM Resorts International (MGM) after yesterday’s earnings report to add these shares to my new Millennial Portfolio. The stock dropped on bad pandemic performance from the company’s Las Vegas casinos and resorts, and a slide in revenue from its Macao operations. But revenue from online betting soared. And that business is the future of MGM–and the reason that investors with long-time horizons would want to own this stock. (And it won’t hurt at all, when revenue picks up from Las Vegas operations once the pandemic is in the rear-view mirror.) I’m also adding the shares to my Jubak Picks portfolio with a target price of $42 a share.
Shares of MGM closed down 3.21% today, February 11, to $35.30.
MGM Resorts International reported a quarterly loss for the fourth quarter of 90 cents a share. That was somewhat better than the loss of 96 cents a share projected by Wall Street analysts. Revenue of $1.49 billion for the quarter was about 1.5% above the Wall Street projection.
The big problem in the quarter was Las Vegas, where MGM Resorts owns about half the casinos on the Vegas Strip. Revenue from the Strip fell by 66% to $480 million as the pandemic forced the cancellation of conventions that would otherwise fill hotels and casinos. Limits on gambling jaunts to Macao hit China revenue hard with a 58% drop to $305 million.
The big positive story was online gambling. Net revenue from its sports betting app, BetMGM, hit $178 million in the quarter, above the company’s guidance of $150 million to $160 million. In its earnings call the company said it expects BetMGM revenue growth in 2021 to be well over 100% from 2020. (BetMGM is a joint venture begun in 2018 with partner Entain. MGM made n $11 billion takeover bid for Entain on January 3. Entain has rebuffed the all cash offer, saying the price is too low.) BetMGM now operates n eight states. Super Bowl LV generated nearly $500 million in wagers, and BetMGM was among the top online platforms. But BetMGM and other apps suffered outages before and during the game as the surge in online betting overwhelmed systems.
Investors Business Daily projects sports betting will grow to a $6.2 billon market in 2024 from $900 million in 2019 as the number of states that have legalized sports betting climbs from 22 in 2020 to a projected 40 in 2024.
Full disclosure: I own Call Options on MGM Resorts International in my personal portfolios