As the casino and hospitality industry bounces back from the challenges of the pandemic, MGM Resorts International (MGM -0.34%) continues to prove its strength. Record first-quarter earnings and innovative strategic expansions, including a lucrative partnership with Marriott International (MAR -1.01%), highlight its robust recovery and growth prospects. There's every indication the company might still be a smart bet for long-term investors.
Strong financial performance amid a strategic expansion
MGM Resorts International continues to make significant strides financially, evidenced by record revenue results in the first quarter of this year. Consolidated net revenue from its diverse portfolio of resorts and casinos rose 13% year over year to $4.4 billion. That growth came primarily from the company's strong showing in Las Vegas and the continued ramp-up of operations at MGM China.
Second-quarter results proved similarly promising, coming in at $4.3 billion, 10% more than the same quarter last year. A focus on international operations helps bolster the company against economic headwinds in other regions. Ongoing expansion plans could have lasting effects.
The strategic partnership between MGM Resorts and Marriott significantly boosted MGM's market reach and customer base over the last year. The MGM Collection with Marriott Bonvoy now includes 16 MGM properties, enhancing booking capabilities and expanding loyalty-program benefits. This partnership increases MGM's visibility and drives higher occupancy rates and revenue per available room. Strong indicators such as these show no cause for concern of a slowdown across the chain.
MGM has also been aggressively returning capital to shareholders through stock repurchases. In the first quarter, it repurchased 12 million shares and another 10 million in the second. Since 2021, it has reduced its outstanding share count by over 36%.
Shares repurchased by MGM are retired under its current agreement. By reducing its share count, MGM enhances the value of individual shares, giving existing shareholders an additional stake in the company.
Operational highlights and strategic initiatives
These successes go beyond the Marriott partnership. MGM continues to show improvement across its brands in regions throughout the world. This global initiative increases its resilience and helps strengthen its position at the top of the entertainment and hospitality market.
The company's Las Vegas Strip resorts reported net revenue of $2.3 billion, driven by high demand and increased average daily rates (ADR). Though the company's regional operations showed a slight decrease in revenue, they continue to perform well. High occupancy rates and ADR showcase the company's strong demand and efficient pricing strategies.
Asia also offers continued opportunity, as MGM China achieved record quarterly results, with a net revenue of $1.1 billion in the first quarter and $1 billion in the second, reflecting 71% and 37% respective increases from the previous year. The removal of COVID-19-related restrictions across the region played a significant role in this recovery. MGM's venture into Japan also marks a significant move, representing the largest project financing in Japan's history and positioning MGM for future growth in the region.
Potential challenges on the road ahead
Despite MGM's strong performance, potential challenges remain. Rising operating costs, including labor and energy expenses, could affect profitability. Moreover, the competitive landscape in the casino and hospitality industry means that MGM must continuously innovate and maintain high service standards to attract and retain customers. Global tensions could have a serious effect on expansion strategy, especially in volatile Chinese markets, where luxury and leisure services may face unique challenges.
However, MGM's strategic focus on cost management and its diversified portfolio provides a buffer against these risks. Management seems to be proactively addressing operational challenges while exploring new growth opportunities, giving it an advantage against such shifts in fortune. With such a strategy in place, the headwinds it faces in these markets appear to be minor.
MGM is a compelling investment with high potential returns
MGM Resorts International's record earnings, driven by strategic partnerships like the one with Marriott, and strong performance in key markets showcase the company's potential for sustained growth. Its focus on operational efficiency and effective cost management further strengthens its financial health, supporting the argument for inclusion in portfolios focused on long-term investment. As MGM expands into new areas and bolsters its offerings in existing regions, investors should watch out for potential stumbling blocks that could include labor costs or geopolitical challenges.
Investing in MGM offers the promise of substantial returns due to its diversified revenue streams, robust booking trends, and commitment to shareholder value. While challenges such as rising operating costs and competition exist, MGM's strategic initiatives and market positioning provide a solid foundation for future success. This high-rolling casino stock looks like a smart bet for investors seeking long-term returns in a hospitality market that has proven volatile and sensitive to global consumer sentiment.
