Growth trends in the gaming industry today are dominated by what's taking place in Macau. And despite the fact that MGM Resorts (NYSE: MGM) only has two resorts in the Chinese territory, and most of its revenue is generated in the U.S., that holds true for it too. Macau still drives more than a quarter of MGM's adjusted EBITDA, a proxy for cash flow coming from resorts.
As 2019 unfolds, MGM will be focusing on growth in Asia, but Macau may not be what's most important for investors in the long term.
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Las Vegas casinos are slow but steady
One of the odd numbers from the company's first quarter was a 13% drop in Las Vegas Strip casino revenue. There was a bit of bad luck in the quarter, but table game volume was down 7%, a large drop for any quarter. For perspective, MGM's volume decline was slightly smaller than the 9% decline in overall table game revenue on the Las Vegas Strip.
It had more success in non-gaming areas. Room revenue was up 5% in Las Vegas, and revenue per available room jumped 3.7% to $155. Food and beverage revenue was also up 8% as Park MGM and NoMad Las Vegas began contributing to results.
The increasing share of revenue coming from non-gaming sources isn't shocking given the long-term trends in Las Vegas. MGM now gets less than half of its Las Vegas revenue from the casino floor, and sees non-gaming as its growth driver in the city.
Macau growth continues
As usual, Macau was where the largest share of growth came from for MGM Resorts. Revenue from the territory rose 23% to $734 million and adjusted EBITDA climbed 26% to $191 million.
On a resort level, the results were more mixed. EBITDA at MGM Macau fell 11% to $129 million, and MGM Cotai, which opened in February 2018, generated EBITDA of just $62 million. It'll take more time for MGM Cotai to hit full speed, and it has a long way to go if it's going to catch up with neighboring resorts that rake in $500 million-plus in EBITDA annually. Meanwhile, the declining results from MGM Macau, which is on the Macau Peninsula, could be the result of the new resort siphoning away some of its business.
Japan is the whale MGM Resorts really wants
The big opportunity MGM Resorts is focused on is Japan, which last summer legalized casino gambling. The company is essentially all-in on Osaka as its location to build, considering that it's the only city to indicate it wants a resort and casino.
We know Japan will allow as many as three new casinos, but the details on what the gaming industry will look like there are sparse, and the country's government still needs to decide which companies will receive concessions. MGM Resorts has as good a chance as any to be one of them. If it does win a license, it will take a large share of a future casino gaming market that is expected to range in size from $10 billion to $40 billion annually.
MGM continues on a steady path
Investors weren't pleased with MGM Resorts' Q1 results -- shares fell 6.9% on Tuesday after they were announced. But the company continues to churn out cash in Las Vegas, Macau revenues are rising, and a potential growth driver is on the horizon in Japan. This won't be a huge growth stock, but given the company's strength in attractive gaming markets, I think that it's a solid long-term play.
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