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Hospitality and casino entertainment company MGM Resorts (NYSE:MGM) announced better-than-expected results in Q2 CY2024, with revenue up 9.8% year on year to $4.33 billion. It made a non-GAAP profit of $0.86 per share, improving from its profit of $0.59 per share in the same quarter last year.
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MGM Resorts (MGM) Q2 CY2024 Highlights:
- Revenue: $4.33 billion vs analyst estimates of $4.21 billion (2.9% beat)
- EPS (non-GAAP): $0.86 vs analyst estimates of $0.59 (46.3% beat)
- Gross Margin (GAAP): 46.6%, down from 47.4% in the same quarter last year
- Free Cash Flow of $236 million, down 37.4% from the previous quarter
- Market Capitalization: $13.42 billion
Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.
Casino OperatorCasino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, MGM Resorts's sales grew at a weak 6.4% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. MGM Resorts's annualized revenue growth of 19.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note that COVID hurt MGM Resorts's business in 2020 and part of 2021, and it bounced back in a big way thereafter.
MGM Resorts also breaks out the revenue for its most important segment, Casino. Over the last two years, MGM Resorts's Casino revenue (Poker, sports betting) averaged 24.8% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company's performance.
This quarter, MGM Resorts reported solid year-on-year revenue growth of 9.8%, and its $4.33 billion of revenue outperformed Wall Street's estimates by 2.9%. Looking ahead, Wall Street expects sales to grow 1.7% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
MGM Resorts has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.4%, subpar for a consumer discretionary business.
MGM Resorts's free cash flow clocked in at $236 million in Q2, equivalent to a 5.5% margin. The company's cash profitability regressed as it was 2.7 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren't a big deal because investment needs can be seasonal, but we'll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from MGM Resorts's Q2 ResultsWe were impressed by how significantly MGM Resorts blew past analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. Zooming out, we think this was an impressive quarter that should delight shareholders. The stock traded up 1.2% to $43.50 immediately after reporting.
