Why investors should look at MGM’s operating segments



Operating segments

MGM Resorts (MGM) has two regional reportable segments:

  1. Wholly-owned domestic resorts in the U.S.
  2. MGM China

Currently, MGM operates 15 wholly-owned resorts in the U.S. MGM China’s operations include MGM Macau and the development of a casino resort in Cotai—MGM Cotai.

Wholly owned domestic resorts

Domestic resorts

The above chart shows MGM’s wholly-owned domestic resorts in the U.S. It should be noted that over half of MGM’s net revenue from wholly-owned domestic resorts is derived from non-gaming operations. This includes hotel, food and beverage, entertainment, and other non-gaming amenities.

Key performance indicators related to gaming and hotel revenues at MGM’s wholly-owned domestic resorts are:

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  1. Gaming revenue indicators – Table games drop and slots handle—volume indicators. MGM’s normal table games’ hold percentage is in the range of 18%–22% of table games drop. Normal slots’ hold percentage is in the range of 8.0%–8.5% of slots handle.
  2. Hotel revenue indicators – Hotel occupancy rate, average daily room rate (or ADR), and revenue per available room (or RevPAR).

MGM China

MGM owns 51%. It has a controlling interest in MGM China. MGM China owns the MGM Macau resort and casino through MGM Grand Paradise.

Operating segments

The above chart shows that MGM China contributed 34% to MGM’s total generated revenues. MGM Macau’s revenues are mainly generated from the customer segments in the Macau gaming market:

  1. VIP casino gaming operations
  2. Main floor gaming operations

MGM Macau’s main floor operations consist of table games and slot machines. A significant portion of MGM’s VIP volume is generated by using gaming promoters. Gaming promoters introduce VIP gaming players to MGM Macau. They assist the customers with travel arrangements. They also extend gaming credit to the customers. In exchange for their services, gaming promoters are compensated through commissions.

MGM’s management views

Management stated that “We believe our investment in MGM China plays an important role in extending our reach internationally and will foster future growth and profitability. Asia is the fastest growing gaming market in the world and Macau is the world’s largest gaming destination in terms of revenue.”

Management also said that “Gaming revenues from the main gaming floors have grown significantly in recent years and we believe this segment represents the most potential for sustainable growth in the future.”

Key stocks and exchange-traded funds (or ETFs)

MGM’s peers include Las Vegas Sands (LVS), Wynn Resorts (WYNN), Melco Crown Entertainment, and Caesars Entertainment (CZR). A good way for investors to get exposure to these companies is to invest in an ETF like the Consumer Discretionary Select Sector SPDR Fund (XLY).

In the next part of the series, we’ll look at MGM’s recent developments. We’ll discuss how the recent developments are driving its growth.


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