- Analysts estimate adjusted EPS of -$0.02 vs. -$1.08 in Q3 FY 2020.
- MGM's Las Vegas room occupancy rate is expected to rise significantly YOY.
- Revenue is expected to more than double YOY, but will still be below pre-pandemic levels.
MGM Resorts International (MGM) racked up nearly $2 billion in net losses last year as tourist trips to its hotels and casinos plunged amid the global COVID-19 pandemic. But this year, things are looking better. MGM's revenue and hotel occupancy have rebounded sharply as worries about the pandemic have eased amid rising vaccinations.
Investors will look closely at whether MGM's recovery is continuing when the company reports Q3 earnings for its fiscal year (FY) 2021 after market close on Nov. 3, 2021. Analysts expect the company's adjusted loss per share to narrow dramatically as revenue more than doubles year-over-year (YOY).
Investors will also focus 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 in Las Vegas, which is MGM's biggest market. For Q3, analysts estimate that the Las Vegas room occupancy rate will more than double YOY, though the rate will still be well below pre-pandemic levels.
MGM shares have skyrocketed in the past year. Since breaking ahead of the market in November 2020, MGM stock has consistently outperformed. Nonetheless, during that period it traded sideways in a wide range for about six months, from late February through August 2021. Since then, the shares have made a strong advance. MGM's shares have provided a 1-year trailing total return of 131.2%. This is far ahead of the S&P 500's total return of 39.4% for the same period.
MGM Earnings History
MGM's business has been heavily impacted by the sharp reduction in tourism and leisure travel in 2020 due to the COVID-19 pandemic. That has inflicted six straight quarters of adjusted losses per share from Q1 FY 2020 to Q2 FY 2021. Before that, MGM had posted just one quarter of adjusted losses in the three fiscal years of 2017, 2018, and 2019. Adjusted losses per share were widest in Q2 FY 2020 and have narrowed each quarter since on a sequential basis. For Q3 FY 2021, analysts expect MGM to dramatically narrow its losses both sequentially and YOY. They estimate a relatively adjusted loss per share of $0.02.
The company's recent revenue history has been similarly weak. MGM posted five consecutive quarters of YOY revenue declines from Q1 FY 2020 through Q1 FY 2021. In Q2 FY 2021, revenue skyrocketed 682.6% to its highest level since Q4 FY 2019. For Q3 FY 2021, analysts also see strong growth as revenue more than doubles to $2.4 billion. That still would be well below the $3.2 billion in revenue MGM posted in Q4 FY 2019, just before the pandemic.
|MGM Key Stats|
|Estimate for Q3 FY 2021||Q3 FY 2020||Q3 FY 2019|
|Adjusted Earnings Per Share||-$0.02||-$1.08||$0.31|
|Las Vegas Room Occupancy Rate (%)||82.5||44.0||92.0|
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 room occupancy rates have fallen significantly due to the COVID-19 pandemic. After at least 12 consecutive quarters in the mid-80s to mid-90s, occupancy plunged to 43% in Q2 FY 2020, then reached its lowest point at 38% in Q4 of that year.
Since Q4 FY 2020, occupancy rates have improved. Q1 FY 2021 was 46%, and rates rose to 77% in Q2 FY 2021. Now, analysts expect that MGM's Las Vegas occupancy rate will rebound to 82.5% in Q3. This is a marked improvement from the lows earlier in the pandemic, but it is still somewhat below a typical pre-pandemic quarter.
A special note that MGM specifies in its public documents that rooms that were out of service during the three months ended June 30, 2020, due to pandemic-related hotel closures were not counted as part of the total available room count. While this approach is not a deliberate attempt mislead, investors should be aware that the room occupancy rate would be even lower if those rooms were added to the total.