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Ten Years of MGM By The Numbers

By Chuckmonster on Monday, 12th July 2010 3:51am
  » filed under MGM Mirage  comments: 4


It has been been 10 years since the ink dried on MGM Grand Inc.'s $6.6B takeover of Mirage Resorts Inc., as good a reason as any to assess how MGM's business strategies have been voted on by investor dollars.

Highlights include MGM Mirage's merger with Mandalay Resort Group, the opening of MGM Grand Detroit, selling a massive amount of their corporate stock to Infinity World at the top of the market, procuring 1/2 of a gaming concession in Macau via a questionable partnership with Pansy Ho and parlaying their brand names and "hotel management expertise" international gaming and non-gaming markets. Oh, and they also managed to build the largest casino project ever - CityCenter.

MGM Resorts

Whew.... what. a. ride. If you were in on MGM stock before the late-2006 vertical motion, your investment yielded at least 300+% growth - assuming you dumped it before the turn of 2008. Just be thankful that you aren't Infinity World stuck holding the bag of depreciated MGM stock AND half ownership of a semi-disaster called CityCenter.

The Red Line

But what about those who held stock during the $21/share Mirage Resorts takeover (MGM stock was ~$45 at that time? You've now got 2x holdings that are worth about 50% of what you paid for it in 2000, subtract another 25% inflation adjustment.

The Volume Knob

Another interesting anomaly in the chart is the truly massive volume of trading on MGM since the stock hit bottom in Q1 2009. Sure is a helluva lot of buying and selling going on for a stock that has flat lined compared to nearly everyone else in the gaming sector. This degree of volume volatility - volleying up and down as MGM's stock stays static - demonstrates that investors haven't figured out which direction this stock is going to go.

Investors don't appear to particularly excited about MGM, which might very well be a reflection on their goals as set by current management. If you can't excite the world with your corporate bread and butter - a gleaming $10B resort in the heart of the Las Vegas Strip - there is little chance that bolting a Marriott-style brand licensing and hotel operations model onto a credit poor economy is the way out of the spider hole.

The MySpace Effect

MGM under Terry Lanni's stewardship had a once-in-a-lifetime run at the stock market craps table. The peaks of 2007-2008 - fueled by credit driven consumer spending, astronomical daily room rates, mixed-use real estate speculation, the Macau hysteria and the burst of the mid-war gloom - will never happen again. As with many companies that experience tremendous on-paper growth, the ecstasy of success breeds an arrogant, cocksure corporate mentality, detached from street level dynamics working towards the companies demise. What are the odds that the current CEO of MySpace has never used Twitter or Facebook? Using MGM CEO Jim Murren's admission that he's never even walked inside Wynn | Encore or Venetian | Palazzo... MGM Resorts International isn't even MySpace, its a Friendster that wants to be Orkut.


Comments & Discussion:


Wow. This is great stuff--you've put a lot of work into actually looking at the numbers behind the numbers.

Well, I'll say this. And you can say I'm just talking my own book, here, but I do have an excellent track record at picking great stocks. MGM stock is easily one of the best valued stocks in the entire industry right now. While I feel that there are certainly better ran companies in the space, namely Wynn Resorts, MGM has by far the most potential upside. I have no idea where this stock is going in 3 weeks, or even 3 months. The market is very skittish right now in general. But if someone takes a long term view on things, I believe this stock has long legs to run. There is little doubt that MGM was highly over-valued in 2007, as were WYNN, LVS, and MPEL. However, in todays terms, MGM is highly under-valued. People are scared of Las Vegas, and City Center. But let me put some things into perspective for you. MGM has less debt today, than they did in several years ago. Yet they've added many new assets, including MGM Detroit, MGM Macau, and City Center. Yes they have lost Treasure Island, but they have future gains coming from the sale of Atlantic City, which is a dead market anyhow, and they are doing an IPO in China for MGM Macau, just like LVS and WYNN did. I'm not a fan of City Center, but they didn't increase debt enough on this project to totally take down their ship either. Even if City Center just breaks even, that's ok, and that should happen in the 2010 calendar year. Lastly they still have 2000+ condo's left to sell, which are already paid for, so that money can either go towards future profit, or paying down the debt.

Call me crazy, many people do, but I do tend to see things in stocks, where other can't. If someone has the patience to wait out MGM for the next 3-5 years, I truly believe they'll reap the benefits. Some of my other success stories....I bought Apple at $11, before most people even new what an ipod was. I got into Wynn Resorts at $16's. I've doubled, tripled, quadrupled, and then some, on many of my picks. I know value when I see it. MGM is a buy!

RE: MGM having a lot of upside... could say the same thing for MPEL, but it hasn't broken for the entire period of its listing. So Swami, being as insightful as you are, how long will it be before shareholders decide that there should be a change in upper management at MGM?

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