Is MGM Stock A Buy As BetMGM's Debut In New York Nears?

14 Jan 2022, 10:17 · Views 579

MGM Resorts International (MGM) has soared from coronavirus crash lows as vaccines roll out with sports betting providing an extra boost. But is MGM stock a buy now? Take a look at MGM Resorts stock's fundamentals and technicals to find out.

MGM Resorts is a global entertainment company with properties featuring hotels and casinos, conference spaces, restaurants, shops and live entertainment. The MGM portfolio includes 29 properties in the U.S. and Macau, including Bellagio, MGM Grand, Aria and Park MGM.

While MGM has casinos in Macau, most of its revenue is derived from U.S. operations. MGM owns half the casinos on the Vegas Strip as well as several properties in other states, including New Jersey, Maryland and Michigan. Rivals Las Vegas Sands (LVS) and Wynn Resorts (WYNN) have larger exposure to Macau, and as a result their revenue took a bigger hit.

On June 1, Nevada casinos began reopening at 100% capacity. However, Nevada has once again instituted a mask mandate for indoor spaces, including Vegas casinos, due to the rapid spread of Covid's omicron variant.

Meanwhile, Chinese officials are proposing tighter rules for Macau casino operators like MGM Resorts. They're calling for the removal of current subconcession system, the appointment of government delegates to oversee gaming operators and the creation of an illegal deposit crime, according to a macaubusiness.com report.

On Nov. 27, Chinese officials arrested several people connected to the gambling industry in Macau. Notably, Alvin Chau, chairman of Suncity Group Holdings, the largest junket operator in Macau was arrested. Officials allege he was involved in illegal gambling and laundering.

Casino stocks with exposure to Macau like MGM fell on the news.

MGM To Sell Mirage, Exploring Japan Casino

In its Q3 presentation after reporting earnings on Nov. 3, CEO Hornbuckle said MGM had begun the process to cell The Mirage, ending its 21-year ownership of the Las Vegas Strip iconic property. No buyer has been announced. MGM management did not reveal a price either.

MGM is turning its focus to open a casino in Japan instead. On July 21, MGM Resorts and Orix Corp. submitted a proposal to build the first casino resort in Osaka, Japan for $9 billion. It's expected to open in the latter half of the 2020s.

MGM Resorts Buys Cosmopolitan

While it's planning to sell The Mirage, MGM is still invested heavily in Las Vegas. On Sept. 27, MGM Resorts reported it had signed a deal to buy The Cosmopolitan of Las Vegas for $1.6 billion from Blackstone. The transaction separates ownership of the property from the hotel and casino operations, which are being sold to MGM Resorts.

Following the close of the deal, MGM Resorts will enter into a 30-year lease agreement, with three 10-year renewal options, with a partnership that includes the Blackstone Real Estate Income Trust, which will acquire The Cosmopolitan's real estate assets.

Before the pandemic, in the trailing 12 months ended Feb. 29, 2020, The Cosmopolitan generated $959 million of net revenue and $316 million of adjusted earnings. In the second quarter ended June 30, 2021, the property generated $234 million of net revenue and $92 million of adjusted earnings.

On July 1, MGM Resorts said it had entered into a definitive agreement to purchase Infinity World Development Corp.'s 50% interest in CityCenter Holdings, for $2.125 billion. The agreement will make MGM Resorts the 100% owner of CityCenter on the Las Vegas Strip, which includes Aria Resort & Casino and Vdara Hotel & Spa. The deal is expected to close in Q3.

Once that deal is complete, MGM Resorts agreed to sell the real estate of CityCenter's Aria and Vdara hotels for $3.89 billion in cash to Blackstone Group, the company said. Blackstone would lease the properties back to MGM for initial annual rent of $215 million.

MGM Eyes Growth With Online Sports Gambling

With the online gambling market slated to reach $127.3 billion by 2027, according to Grand View Research, the BetMGM sports gambling and iGaming app is a priority.

On April 21, management said BetMGM is on track to rake in $1 billion net revenue by 2022, up sharply from $178 million in 2020.

MGM Resorts launched BetMGM in New Jersey in 2019, with partner GVC Holdings (now Entain). In March 2020, BetMGM went live in Nevada and has continued rolling out elsewhere since then. The app boasts 160 million customer profiles.

Is MGM Stock A Buy As BetMGM's Debut In New York Nears? — (REDPIXEL.PL/Shutterstock.com)

Entain An M&A Target

MGM is turning its focus to online sports betting. It solidified its partnership with Entain (GMVHY) with a second round of investment in BetMGM in July. MGM made an $11 billion takeover bid for Entain on Jan. 3. Entain rebuffed the all-cash offer, saying it significantly undervalued the company.

On Sept. 21, online gambling specialist DraftKings made a $20 billion takeover proposal to buy Entain. It sweetened the deal to $22.4 billion the following day. But on Oct. 26 DraftKings scrapped its offer.

BetMGM Market Share Falls

Morgan Stanley analyst Thomas Allen said in a note to clients on Nov. 23 that BetMGM is clearly a top iGaming and sports-betting operator.

"However, share has started to fall, and we see risk if this continues from increased competition with (Caesars Entertainment) spending heavily (and helped by a 60 million-plus legacy database vs. MGM's 37 million) and PENN (24 million database) entering new states," he added.

BetMGM's 2020 operating losses were $62 million, which were split with its JV partner. Management doesn't expect it to be in the black until 2023.

BetMGM includes more than 100 gaming kiosks across MGM's Las Vegas properties. BetMGM now operates in 13 states and the District of Columbia. It is poised to go live in New York soon.

New York State OKs Sports Betting

Meanwhile, New York state now allows online sports betting. BetMGM was among the nine operators selected on Nov. 9.

The operators include including DraftKings (DKNG) and FanDuel as well. The others are: BallyBet, Caesars Entertainment (CZR), Rush Street Interactive, Wynn Interactive, Resorts World and PointsBet. Penn National Gaming (PENN) was excluded.

On Jan. 8, the first group of operators, which included Caesars Sportsbook, DraftKings, FanDuel and Rush Street, launched online sports betting in the Empire State. BetMGM is among the second group of five other operators that is conditionally approved, including Bally's (BALY). They are still in the process of getting final regulatory approval.

MGM management said that it sees a total addressable market in North America of $28 billion, split 50-50 between online sports betting and iGaming. Canada represents a $4.4 billion market in which BetMGM expects to participate. Canada legalized sports betting on Aug. 27.

As more states allow online sports gambling, MGM stands to benefit, but so do its rivals. Moreover, BetMGM has a lot of work to do to catch up to online gambling specialist DraftKings.

Right now, FanDuel and DraftKings lead the online sports betting market. BetMGM competes with Penn's Barstool and Caesars' William Hill PLC for No. 3. MGM says BetMGM is currently among the top three in each of its markets.

BetMGM Partnerships

On June 2, hockey legend Wayne Gretzky signed a multiyear deal as brand ambassador for BetMGM.

"As we look toward potential expansion into Canada, and elsewhere throughout the United States, Wayne will bring a unique ability to tell our brand story," said BetMGM's chief revenue officer Matt Prevost.

On June 3, BetMGM announced it has been named the exclusive sports betting partner of The Hockey News. Under the multiyear partnership, BetMGM and The Hockey News' journalists will collaborate on print and video content from a betting perspective.

On June 10, BetMGM teamed up with mixed martial arts promoter PFL (Professional Fighters League. PFL fans can now place bets on BetMGM during events televised on ESPN networks and streaming platforms.

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