MGM Q3 Profits Could Surge on Las Vegas Occupancy Rates

MGM Resorts International (MGM), the second-largest gambling company in the U.S. by market value, will likely say profit soared in the third quarter, driven by a rebound in leisure demand and convention business in Las Vegas.

MGM probably earned 22 cents a share, excluding certain items, more than seven times the 3 cents it earned a year ago, while revenue climbed by a fifth to $3.2 billion, according to an average estimate from Visible Alpha.

Casinos in the U.S. have rebounded in recent months after COVID-related shutdowns, reflecting pent-up demand as Macau, another global gambling hub, suffers from pandemic restrictions. U.S. casino gambling reached record highs in the second quarter, driven by a return to leisure travel and gains in convention business.

A key measure of MGM's recovery is the company's Las Vegas Strip room occupancy rate, which shows the number of roms occupied by paying guests in the firm's biggest market. Analysts say third-quarter rates probably rose 20%, topping pre-pandemic levels.

MGM shares are down 27% in the last year, compared with a 16% drop in the S&P 500 Index over the same period (see chart below).

MGM Earnings History

MGM posted per-share losses for six consecutive quarters starting Q1 2020 and delivered four quarters of profit below pre-pandemic levels.

MGM's revenue plummeted early in the pandemic to a low in the second quarter of 2020 and growth didn't start picking up since the first quarter of this year.

^{Source: Visible Alpha}

The Key Metric

MGM's Las Vegas Strip room occupancy rate, a metric indicating the percentage of a resort's rooms being occupied by paying guests, is a metric used by 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, which are relatively fixed regardless of the number of guests. Empty rooms mean lost earnings because the marginal cost of an additional guest is negligible compared with the marginal revenue.

Analysts predict that MGM will post room occupancy of 91.4% in the third quarter, the second-highest in three years. The Las Vegas rate plunged in the second quarter of 2020 and began to rebound in 2021.