Key Points
- So, MGM’s net loss has shrunk to $17m, but its adjusted EBITDA has taken a bit of a beating, down 20% to $403m.
- Casino revenue on the Strip is up by 8%, but don’t get too excited, because room rates have plummeted by 8% and that’s dragged hotel earnings down.
- And, just to add to the drama, the talks with People Inc. are now over, which means MGM can now start thinking about buybacks, but weirdly, it bought no shares in Q3.
MGM Manages to Cut Its Q3 Loss by a Big Chunk, but Adjusted EBITDA Fails to Follow
MGM’s net loss has shrunk by a staggering $268m in the past 12 months, it’s now down to just $17m. However, you’d think that’d be cause for celebration, but adjusted EBITDA has actually taken a 20% hit, falling from $506m to $403m over the same period. Revenue? Yeah, that’s down 1% too, to $4.21bn. Not exactly a glowing report card.
The reason the loss has shrunk so dramatically is largely that the company didn’t have to fork out for all those big charges it did last year. You know, the ones that added up to $357m? Yeah, those ones weren’t there this time round. The same sort of thing happened in 2025, when a $256m goodwill impairment and $101.8m in property transaction charges really took the wind out of its sails. This time around, those costs were down to a relatively paltry $7.6m.
It’s clear that the Las Vegas Strip is still struggling, too, with EBITDAR down 18% to $601m. Last October, MGM said its $285m loss was largely down to non-cash charges after it pulled out of the Empire City licence, but of course, that’s by the by now. The bigger issue is that the Strip is still feeling a bit down in the dumps, and it’s not looking like things are about to pick up anytime soon.
Las Vegas Casinos See Some Growth, But Hotel Room Prices Plummet
MGM’s Las Vegas business has delivered a bit of a mixed bag, then. Casino revenue has risen by 8% to $488m, mainly thanks to a 17% boost in table games win to $363m. What’s more, the table games win percentage is up to 25.3%, up from 22.6% a year ago. That’s all well and good, but the hotel sector hasn’t been quite so lucky. Occupancy is still 89%, but the average daily room rate has tanked by 8% to $218. Revenue per available room, or RevPAR, has also dropped 8% to $193. And to make matters worse, room revenue has gone down 6% to $622m, while segment EBITDAR is down 12% to $531m. Not exactly the kind of growth MGM might have been hoping for.
CEO Bill Hornbuckle had a go at the airline industry, saying that “airline prices to Las Vegas have gone up by about 45% in Q3 versus last summer.” Not exactly the kind of news you want to hear.
And then there’s the issue of room prices, which have been steadily dropping all quarter, according to CFO Jonathan Halkyard. He says July was pretty much flat, August saw a mid-single-digit decline, and September saw a high single-digit percentage drop. Not exactly what you want to hear, and one analyst on the earnings call even went so far as to say that RevPAR has now been in the doldrums for eight consecutive quarters.
The Allocation of the Marketing Budget Has Shifted towards Casinos
According to Hornbuckle, MGM has altered its allocation of the marketing budget. Casino customers represent “a little over 30” of the marketing budget, as compared to 20% before.
He also clarified that the customers “take before they give”. Essentially, MGM needs to incur expenditures for getting these customers to itself in order to see profit from them. Therefore, increased activity in casinos could be associated with increased marketing expenditures.
Regional Revenue Falls 8%; the Sale of Northfield Park Impacts Comparison
The MGM Regional Operations saw its revenue fall by 8% to $883m against the year-ago period. It reflects the impact of the sale of Northfield Park in April. If excluded, the revenue was $1m ahead at $873m.
The earnings performance was poor even after considering the effect of the sale. EBITDAR slid 18% to $243m, or 7% on a same-store basis. Slot win tumbled 11% to $629m, while regional casino revenue fell 10% to $626m.
Macau Establishes New Revenue Records; Digital Reduces Its Loss
Macau has provided one of the best revenue performances for MGM. The revenue increased by 5% to a record $1.14bn. The market share reached a record 17.1%. Still, segment EBITDAR slipped 7% to $264m.
An $22m rise in an intercompany brand fee, to $41m, is the primary reason for the $20m decline in segment EBITDAR. The fee is written off during the consolidation of the accounts by MGM and, therefore, does not affect its bottom line.
MGM Digital saw its revenue grow by 6% to $184m. The EBITDAR loss contracted to $4m from $23m last year. According to Hornbuckle, “We are showing real growth in the UK and some of our other markets on MGM’s wholly-owned Digital.”
The BetMGM joint venture between MGM and Entain saw its revenue rise by 7% to $710m. On 13 October, the venture announced its adjusted EBITDA had climbed 112% to $86m. MGM took fees and distributions amounting to $34m from the joint venture.
There have been concerns about Brazil owing to a provisional measure that was issued on 25 September. The betting sites were supposed to go offline on 6 October. Nevertheless, Congress should first approve the measure. Hornbuckle called the development “unfortunate”.
Withdrawal of People Inc.’s Offer, End of the Negotiations Between People Inc. and MGM
People Inc. made its offer on 1 June with a non-binding offer for $48.30 per share. That is, at the moment of the offer, it owned 26.1% of MGM shares. The price offered was 24.1% higher than the average price of the stock for the last 30 days.
As Barry Diller, the chairman of People Inc., expressed, the deal would allow the company to invest in assets that cannot be easily replaced by artificial intelligence. “Real world assets that AI cannot easily replicate or disintermediate”.
People Inc. decided to withdraw its offer on 23 September after months of negotiations with MGM’s special committee. At that moment, it owned around 27%, or 66.8 million shares of MGM.
“We didn’t feel the mix was coming together in the way we had hoped”. Also, Diller added the possibility of a “strategic transaction”. Later on, it became known that MGM might consider a deal to purchase People Inc.
Hornbuckle denied that possibility in the earnings call. “We are done, and I meant that”.
An amended voting agreement limits the total ownership of People Inc. and its affiliated companies to 29.9%. Also, People Inc. should agree with MGM’s board in case of any change of control. In return, MGM should refrain from any defensive actions towards People Inc. in case of compliance with the agreement.
Buybacks are Possible for MGM But Not Implemented Yet
No buyback was implemented by MGM in the third quarter. Halkyard referred to “the circumstances surrounding the company” while explaining that.
After the signing of an amended agreement with People Inc., MGM now has a structure to implement its share repurchase program. However, the company has not made any public statements about it. There is still authorisation for $1.4bn.
Moreover, Halkyard mentioned the possibility of implementing more leverage in order to take advantage of the incredible dislocation in the valuation of the company.
On 30 September, MGM had $2.40bn in cash and $5.67bn in long-term debt. Halkyard noted that MGM’s domestic business is trading “at less than 3x” trailing EBITDA.
The valuation analysis performed by him provides the market value of MGM China and a conservative valuation of BetMGM. No valuation is provided for MGM Digital and Osaka projects.
NFL Games and Formula One Can Help MGM in Q4
The CEO noted that things were improving in October. “October has bounced back nicely,” he said, adding that there were three NFL games in the month. Formula One was expected to return to Las Vegas in November.
Booking windows are also shorter compared to last year, making it difficult to forecast demand.
Analysis by Experts: The Smaller Loss Is Not an Indicator of MGM Rebound
We think that the reduction in net loss by MGM is not as important as the reduction in adjusted EBITDA. The decrease in loss occurred due to the absence of significant charges that appeared last year. At the same time, adjusted EBITDA was reduced by a fifth. The headline reduction does not indicate the rebounding of the underlying business.
We are also doubtful about the ability of higher airfares to explain the decline in room prices. As a representative said in the conference call, RevPAR has been falling for eight consecutive quarters. Jet fuel reached its maximum level in September, which means that such a phenomenon could not have affected the decline that occurred much earlier. Perhaps, airfares affected the performance in Q3, but the longer-term decline required other reasons.
Changes in casino marketing programs should be discussed, too. The share of casino players in the marketing mix exceeded 30%, which was 20% last year. It means that MGM’s results are becoming more dependent on retained table games. In the current quarter, that rate reached 25.3%, but it can fall as fast as it grows.
Finally, the proposed share repurchase is another point of concern. MGM wants to spend more money to repurchase its shares at a time when hotel room prices are under pressure and when there is a need to spend billions on the Osaka project. Such a decision should be reviewed carefully. If the recovery in October does not continue, will it be possible to support income from the casino business?
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