MGM in Macau Expansion
The new ‘growth’ phase in MGM’s journey will not be smooth. New acquisitions and ventures will raise shareholder expectations and stock prices. An inability to match up to these expectations could have disastrous results. Last quarter, MGM China EBTIDA fell short of expectations by $40 million. China is an unstable market, and MGM doesn’t enjoy its Nevada-esque reputation in the Chinese hinterlands. Macau’s money supply has gone down by 1 percent during this year. At the same time, there are at least $200 billion in US tariffs that could hurt the company overseas.
Stock prices will become more volatile over time, and MGM is trying hard to become a ‘growth stock’ to appear more lucrative to the shareholders. It seems obvious that MGM is trying to avoid the fate it suffered during the 2008 meltdown. This time, the company looks eager to diversify its interest to protect from a sudden collapse. The gambling giant’s experiences in Japan after the financial meltdown are unlikely to stay consistent in the next decade. An ‘asset light’ strategy now replaces its ‘real estate’ first policy.
More specifically, MGM is looking to dilute its interests from Bellagio, MGM Springfield, MGM Grand, and Circus Circus. Nevada’s weak financial state is not a relief for the company. It currently has a reserves fund that will last less than four days. Taking a break from the Nevada properties will help MGM tread carefully in troubled waters and free up resources for diversified investments.
MGM expects operating expenses to slump in the next quarter, followed by an increase in revenue. MGM Springfield will spearhead this revenue generation spree. Ironically, Massachusetts is not a fiscally responsible state either. It received a disappointing and embarrassing F from TruthinAccounting this June. Park MGM’s transformation, however, could help increase their income. On the other hand, MGM Cotai, the company’s Macau property is prepping for the Golden Week VIP operations, helping bring in some revenue.
The good news for MGM is that a transformation could help the company in preparing for tough times in the future. The global gambling market may not be as stable as it appears on the outside and diversification of assets could help the company.