Key Takeaways

  • Analysts estimate adjusted EPS of -$0.39 vs. -$1.52 in Q2 FY 2020.
  • MGM's Las Vegas room occupancy rate is expected to rise YOY.
  • Revenue is expected to improve YOY for the first time since Q4 FY 2019, although not to pre-pandemic levels.

MGM Resorts International (MGM) has seen consumer demand increase at its domestic properties in recent months and anticipates a return to pre-pandemic business in 2022 and 2023. The casino operator has also made a bet on business abroad, having in late July formally proposed building a $9 billion resort in Osaka, Japan. However, concerns regarding recovery from the COVID-19 pandemic remain, particularly given the rise of the contagious Delta variant around the globe.

Investors will watch for signs that MGM's business is on its way toward recovery when the company reports Q2 earnings for its fiscal year (FY) 2021 after market close on Aug. 4, 2021. Analysts predict a marked improvement over recent quarters. Adjusted losses per share are expected to narrow, while revenue is expected to skyrocket year-over-year (YOY), although not yet to pre-pandemic levels.

Investors will also be focused on MGM's Las Vegas room occupancy rate. The room occupancy rate is a key metric showing the number of available rooms that are being occupied by paying guests and Las Vegas is MGM's biggest market. Consensus estimates predict that this figure will improve substantially YOY, although also not yet to within the typical pre-pandemic range.

MGM shares have significantly outperformed the broader market in the past year. The stock began trading ahead of the market in early Aug. 2020 and then traded sideways through October. Since that time, it has widened its performance gap versus the S&P 500 considerably, although shares are slightly down from their peak in late June. As of Aug. 1, 2021, MGM shares have provided a total return of 125.6%, well above the S&P 500’s total return of 35.4%.

 One Year Total Return for S&P 500 and MGM
Source: TradingView.

MGM Earnings History

MGM's business has been hit hard by the pandemic-related slowdown of tourism and leisure travel. The company has posted five consecutive quarters of adjusted losses per share, beginning in Q1 FY 2020 with the start of the pandemic in the U.S.

The most significant losses occurred in Q2 last year, with the following three quarters improving on a sequential basis. Analysts predict that trend to continue, forecasting that losses in Q2 FY 2021 will continue to narrow. This would be a step in the right direction, but still short of a turnaround from negative to positive.

Revenue across MGM's business has fared similarly. Throughout FY 2017, 2018, and 2019, the company reported steady YOY gains to quarterly revenue in the range of 3.9% to 23.0%. Revenue then plunged beginning in Q1 FY 2020, with substantial YOY losses for that quarter and each of the subsequent four quarters.

Analysts expect that revenue will finally rise again in Q2 FY 2021, climbing by more than 600% YOY. Skyrocketing revenues will be a welcome sign of recovery, although the $2.2 billion forecasted for Q2 FY 2021 still marks a substantial drop on the $3.2 billion reported in Q2 FY 2019.

MGM Key Stats
  Estimate for Q2 FY 2021 Q2 FY 2020 Q2 FY 2019
Adjusted Earnings Per Share -$0.39 -$1.52 $0.23
Revenue (billions) $2.2 $0.3 $3.2
Las Vegas Room Occupancy Rate (%) 73.5 43.0 95.0

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focusing on the room occupancy rate for MGM's properties in Las Vegas, the company's biggest market. The company owns 13 resort properties in Las Vegas, including the Bellagio, MGM Grand, Luxor, Mandalay Bay, The Mirage, and Excalibur.

The room occupancy rate, a metric indicating the percentage of a resort's rooms being occupied by paying guests, is a critical metric used in the hotel industry to gauge a company's ability to cover its fixed costs and generate positive earnings. Many of the costs of running a hotel or resort property are rent or mortgage expenses, utility bills, and wages. These are relatively fixed regardless of the total number of guests. Empty rooms mean lost earnings as the marginal cost of an additional guest is negligible compared to the marginal revenue.

MGM's Las Vegas room occupancy rate has been decimated due to the COVID-19 pandemic. The annual room occupancy rate for MGM's Las Vegas properties was 91.0% for at least each of the three years through the end of FY 2019, before falling to 55.0% for FY 2020.

It's important to note that MGM's published room occupancy rate does not tell the full extent of the pandemic's impact on the company's financial performance. MGM says that rooms that were out of service during the year ended Dec. 31, 2020, due to pandemic-related hotel closures were not counted as part of the total available room count. This is not a deliberate attempt to be misleading on MGM's part, but investors should be aware that if those rooms were counted as part of the total available, then the room occupancy rate would be even lower.

Q4 FY 2020 saw a Las Vegas room occupancy rate of just 38.0%, the lowest since the start of the pandemic. While this figure improved slightly to 46.0% in Q1 FY 2021, there remains significant room for recovery. Analysts now expect MGM to make up a large portion of the difference between those pandemic rates and average pre-pandemic rates in Q2 FY 2021. Consensus estimates call for a Las Vegas room occupancy rate of 73.5% for the quarter, a major improvement but not a return to pre-pandemic levels.