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MGM Resorts' Q2 FY2025 saw FX losses and Las Vegas weakness offsetting gains in China and digital, with margins under pressure and cautious near-term outlook amid high leverage and Capex.

# MGM Resorts Q2 FY2025: FX Headwinds and Las Vegas Weakness Offset China and Digital Gains

---

## Executive Summary

- **MGM Resorts reported Q2 FY2025 revenue of $4.4B, up 2% YoY and slightly above consensus,** driven by robust growth in MGM China and Regional segments. However, **Las Vegas underperformed** due to ongoing remodeling disruptions and midweek demand softness.
- **Earnings quality was pressured:** Diluted EPS fell sharply to $0.18 (vs. $0.60 YoY), missing expectations, while adjusted EPS of $0.79 also declined YoY. A significant **$208M FX pre-tax loss** weighed on net income, which dropped to $49M from $187M.
- **Margins compressed,** with net margin at 3.47% (below industry average) and Las Vegas Strip EBITDAR down 9% YoY. Cost inflation, labor, and elevated Capex—especially for property remodels—continue to pressure profitability.
- **Management’s tone was mixed:** While optimistic about Q4 FY2025 and FY2026 recovery (driven by capital investments and strong convention bookings), they acknowledged near-term headwinds in Las Vegas and ongoing cash flow pressures.
- **Key risks include FX volatility, regulatory uncertainty, and high leverage (Debt/Equity at 11.03),** while upside stems from record MGM China market share, strong regional EBITDAR, and digital (BetMGM) profitability. **Short-term market reaction is likely cautious,** with investors watching for Las Vegas recovery and further cost control execution.

---

## Performance Snapshot

| Metric         | Reported | Consensus | Surprise | YoY Change |
|----------------|----------|-----------|----------|------------|
| Revenue        | $4.4B    | ~$4.35B   | +$50M    | +2%        |
| Diluted EPS    | $0.18    | $0.22     | -$0.04   | -70%       |
| Adjusted EPS   | $0.79    | $0.82     | -$0.03   | -8%        |
| Net Income     | $49M     | $120M     | -$71M    | -74%       |
| Net Margin     | 3.47%    | —         | —        | -          |
| Las Vegas EBITDAR | $710M | —         | —        | -9%        |
| MGM China EBITDAR | $301M | —         | —        | +3%        |
| Regional EBITDAR  | $397M | —         | —        | +7%        |

---

## Earnings Quality

- **Revenue mix was favorable** in MGM China (record market share, +3% EBITDAR YoY) and Regional operations (+7% EBITDAR), but **Las Vegas performance lagged** due to remodeling and midweek softness.
- **Margins compressed**: Net margin at 3.47% is below industry average, with Las Vegas Strip EBITDAR down 9% YoY. The **$208M FX loss** was a major drag on profitability.
- **Cost structure remains pressured** by labor, service upgrades, and **elevated Capex** (remodeling at MGM Grand, NY, and Japan). While $80M of a planned $150M cost control initiative has been realized, ongoing Capex continues to weigh on cash flow.

---

## Management Commentary & Guidance

- **Management’s tone was cautiously optimistic:** They highlighted a “bright outlook” for Q4 FY2025 and FY2026, citing capital investments and strong convention bookings as drivers of future growth.
- **Guidance is moderately in line with consensus:** Management expects Las Vegas to recover post-remodel, leveraging a robust event calendar. However, they remain conservative due to FX volatility and operational headwinds.
- **Digital growth (BetMGM) is a bright spot,** turning profitable after a prior $38M loss. Management reiterated commitment to cost controls and digital expansion, but flagged persistent regulatory and operational risks.

---

## Key Risks

- **FX volatility** (already a $208M pre-tax loss this quarter)
- **Regulatory risks** (cybersecurity, policy changes, potential gambling tax hikes)
- **Cash flow pressure** from rising Capex and delayed share repurchases
- **High leverage** (Debt/Equity at 11.03)
- **Las Vegas recovery risk** if demand remains soft post-remodel

---

## Expected Market Reaction

- **Short-term market reaction is likely cautious:** The earnings miss, FX headwinds, and Capex concerns may pressure the stock, especially with short interest rising to 11.45% of float.
- **Offsetting positives:** Strong MGM China and Regional results, plus digital profitability, may attract long-term investors and temper immediate downside.

---

## Final Takeaway

- **Q2 FY2025 was a fragile quarter for MGM Resorts,** with persistent headwinds in Las Vegas and FX overshadowing strength in China, Regional, and Digital segments.
- **The market may be underpricing ongoing operational and cash flow risks,** particularly in Las Vegas and from elevated Capex, while overvaluing near-term digital and China growth.
- **Upcoming catalysts:** Watch for Las Vegas post-remodel recovery in Q4 FY2025, further digital profitability updates, and regulatory developments (including potential crypto-betting and gambling tax changes).

---

MGM Q2: FX, Vegas Weakness vs. China, Digital Strength

MGM Resorts benefits from resilient Las Vegas Strip demand and strong occupancy, but faces ongoing margin pressures from cost inflation; management signals confidence with a $2B share repurchase and focus on digital growth.

# MGM Resorts International: Navigating Resilient Demand and Margin Pressures Ahead of Q2 Earnings

## Executive Summary: Bullish on Resilient Strip Demand, Cautious on Cost Pressures

We maintain a **Bullish** outlook for MGM Resorts International heading into the upcoming quarter, driven by **record 94% occupancy rates on the Las Vegas Strip** and **8% YoY growth in casino revenue** despite a modest –2% YoY decline in total Q1 revenue to $4.28B. Management’s aggressive $2B share repurchase authorization and commentary around a “record hotel month” in April signal strong confidence in near-term cash flow and earnings stability. However, the market may be underestimating the **potential for margin expansion** if cost inflation moderates and digital initiatives (notably BetMGM’s profitability improvements) continue to gain traction. The key risk remains persistent input cost inflation, which could cap operating margin recovery if not managed effectively.

## Recent Trends Signal What’s Next: Strip Resilience Offsets Top-Line Softness

Recent quarters reveal a nuanced picture: while **total revenue declined –2% YoY in Q1 FY2025**, the Las Vegas Strip segment posted **8% casino revenue growth** and maintained **record occupancy (~94%)**. Operating margin compressed to **9.0%** in Q1, reflecting cost inflation, but management’s cost control initiatives and easing input pressures could drive sequential improvement. The digital segment (MGM Digital) remained flat, but BetMGM’s profitability inflection is a positive outlier.

### Table: Key Financial Trends (Last 4 Quarters)

| Quarter   | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|-----------|--------------|------------------|---------------------|---------------|---------|
| Q2 2024   | 4.35         | 38.2             | 9.7                 | 5.1           | 0.41    |
| Q3 2024   | 4.32         | 37.8             | 9.3                 | 4.8           | 0.39    |
| Q4 2024   | 4.30         | 37.5             | 9.1                 | 4.6           | 0.37    |
| Q1 2025   | 4.28         | 37.0             | 9.0                 | 4.4           | 0.36    |

**Trend:** Revenue and margins have modestly declined over the past year, but the rate of decline is slowing, and Strip gaming metrics are improving.

## Management’s Forward Tone and Positioning: Cautious Optimism with Execution Focus

Management’s recent commentary is marked by **cautious optimism**: “We’re seeing early signs of normalization in demand,” and “well positioned for a record hotel month in April.” This is a shift from the prior quarter’s more defensive tone, which emphasized “macro uncertainty” and “cost headwinds.” The introduction of a **$2B share repurchase program** and references to “operational agility” suggest management is confident in both near-term demand and their ability to navigate cost pressures. The tone has clearly shifted from defensive to proactive, with a focus on execution and capital returns.

## KPI Trends & Upcoming Quarter Drivers: Occupancy, Gaming Metrics, and Digital Engagement

Three KPIs will be pivotal for next quarter’s results:

- **Las Vegas Strip Occupancy:** Held at **94% in Q1**, up from 92% YoY and flat QoQ, supporting stable room revenue.
- **Table Game Win Percentage:** Rose to **26.7% in Q1** from 25.2% YoY, indicating improved gaming profitability.
- **MGM Rewards Membership:** Surpassed **50 million**, with digital platforms now handling ~80% of initial guest interactions, up from 75% YoY.

### Table: KPI Movements (YoY and QoQ)

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Strip Occupancy (%)        | 92      | 94      | 94      | +2         | 0          |
| Table Game Win (%)         | 25.2    | 26.1    | 26.7    | +1.5       | +0.6       |
| Rewards Members (M, est.)  | 47      | 49      | 50      | +3         | +1         |

**Impact:** Sustained high occupancy and improved gaming metrics should drive incremental revenue and margin gains, while digital engagement supports customer retention and ancillary revenue streams.

## Missed by the Street: Share Repurchase as a Signal of Underlying Strength

A key overlooked signal is the **$2B share repurchase authorization** disclosed in recent filings. While often viewed as a capital allocation tool, the scale and timing—amid margin pressures—suggest management’s conviction in near-term cash flow stability and earnings resilience. This is reinforced by commentary around “record hotel month” and “operational agility,” indicating a willingness to return capital even as the company invests in digital and international growth.

## Scenarios for the Upcoming Quarter: Demand Strength vs. Cost Headwinds

### Table: Scenario Analysis for Q2 FY2025

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                 |
|----------|--------------|---------|----------------------|-------------------------------------------------|
| Bull     | 4.35         | 0.40    | 9.5                  | Strong Strip demand, easing cost inflation, digital outperformance |
| Base     | 4.28         | 0.36    | 9.0                  | Stable demand, moderate cost pressure, steady digital growth      |
| Bear     | 4.20         | 0.33    | 8.5                  | Cost inflation persists, weaker comps, digital losses widen       |

**Most Likely Scenario:** The **Base case** is most probable, given current evidence of stable Strip demand, incremental digital gains, and ongoing—but not worsening—cost pressures.

## Appendix – Data Tables & Management Quotes

### Table: Quarterly Revenue, EPS, and Margin Trends

| Quarter   | Revenue ($B) | EPS ($) | Operating Margin (%) |
|-----------|--------------|---------|----------------------|
| Q2 2024   | 4.35         | 0.41    | 9.7                  |
| Q3 2024   | 4.32         | 0.39    | 9.3                  |
| Q4 2024   | 4.30         | 0.37    | 9.1                  |
| Q1 2025   | 4.28         | 0.36    | 9.0                  |

### Table: KPI Movements

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Strip Occupancy (%)        | 92      | 94      | 94      | +2         | 0          |
| Table Game Win (%)         | 25.2    | 26.1    | 26.7    | +1.5       | +0.6       |
| Rewards Members (M, est.)  | 47      | 49      | 50      | +3         | +1         |

### Key Management Quotes

1. **“We’re seeing early signs of normalization in demand.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Management expects demand to stabilize, supporting near-term revenue.*

2. **“Well positioned for a record hotel month in April.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Anticipates strong occupancy and room revenue in the upcoming quarter.*

3. **“Operational agility will be key as we navigate cost pressures.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Focus on cost control to protect margins.*

4. **“We have authorized a $2B share repurchase program.”**  
   *Q1 2025 10-Q Filing*  
   *Interpretation: Strong confidence in cash flow and underlying business strength.*

5. **“Digital engagement now accounts for 80% of initial guest interactions.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Digital transformation is driving customer engagement and efficiency.*

6. **“BetMGM is trending toward positive EBITDA for the first time.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Digital segment is approaching profitability, supporting earnings diversification.*

7. **“We remain cautious given ongoing macro uncertainty.”**  
   *Q1 2025 Earnings Call*  
   *Interpretation: Management is aware of external risks, tempering expectations.*

---

**Conclusion:**  
MGM Resorts International enters the next quarter with robust Strip demand, improving gaming metrics, and a confident management team signaling capital returns. While cost inflation remains a risk, the company’s operational agility and digital momentum position it for a potential upside surprise if margin pressures abate. The market may be underestimating the near-term earnings resilience signaled by management’s actions and commentary.

MGM: Strip Strength and Margin Headwinds Ahead