Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Can Work from Vegas Save MGM Resorts?

Desperate casino operator MGM Resorts International (NYSE: MGM) could have found the business plan that saves tourism and casinos from oblivion.

The “Work from Vegas” packages gamblers to fly to Sin City and stay at MGM’s Bellagio, Flamingo, MGM Grand, and ARIA casinos. In “Work from Vegas,” gamblers can work from their suites during the day and spend their evenings in the casino.

To attract affluent remote workers, MGM Resorts (NYSE: MGM) offers such perks as a personal assistant. In addition, remote-working whales can social distance by flying non-stop to Las Vegas. MGM and Allegiant Travel Company (NASDAQ: ALGT), an airline, teamed up to create the Work from Vegas or “fly, work, and play package.”

Is Work from Vegas the future of Travel and Tourism?

MGM and Allegiant are marketing Work from Vegas to affluent professionals in Chicagoland, California; Cincinnati; Indianapolis; Rockford, Illinois, and other cities, USA Today reports. Allegiant serves 58 cities from McCarran International Airport on the Las Vegas Strip.

Allegiant and MGM charge $340 to $638 for a four day “Work from Vegas” package. The price depends on the casino, gamblers chose. The old Flamingo costs $227 while MGM charges $638 to “Work from Vegas” at the swank Bellagio.

“The business traveler paying on the corporate card is now giving way to the individual travelers paying their own way to work remote, but away from home,” Allegiant (NASDAQ: ALGT) Chief Marketing Officer Scott DeAngelo tells USA Today. DeAngelo thinks casinos need “Work from Vegas” because of lost revenues from international visitors.

Las Vegas Attracts No Visitors

Las Vegas attracted 3.009 million overseas visitors and 5.8334 million international visitors in 2018, the Las Vegas Convention and Visitors Authority estimates.*

However, the US government is keeping travelers from many regions; including China, the European Union, the United Kingdom, the Republic of Ireland, and Brazil out of the United States. Thus 8.8424 million visitors cannot reach Las Vegas and MGM’s tables and slot machines.

Furthermore, coronavirus is killing Las Vegas’s convention business. For example, they have cancelled the famous Consumer Electronics Show (CEC) 2021.

Instead, the Consumer Technology Association (CTA) will hold the CEC online, Ars Technica reports. The CEC cancellation is a disaster for Vegas because the electronic industry’s biggest trade show can attract over 150,000 visitors each year.

The CTA cancelled the CES because of America’s failure to contain coronavirus. However, the CES could return in 2022 if Coronavirus is under control.

Thus, MGM’s Las Vegas casinos could have no convention business until 2022. Consequently, seeking new markets such as “work from Vegas” is a smart move.

Is MGM Resorts Making Money?

MGM Resorts (MGM) needs new markets because its casinos lose money. For instance, MGM reported a -$1.035 billion quarterly operating loss on 30 June 2020.

In contrast, MGM reported a $1.251 billion quarterly operating income on 31 March 2020 and a $2.96 billion operating income on 31 December 2019. Moreover, MGM’s quarterly gross profit fell from $1.285 billion on 31 December 2019 to $814.65 million on 31 March 2020 to -$84.56 million on 30 June 2020.

Plus, MGM’s revenues have collapsed. MGM reported quarterly revenues of $3.185 billion on 31 December 2019 to $2.253 billion on 31 March 2020 to $289.81 million on 30 June 2020.

Astonishingly, Stockrow estimates MGM’s revenues shrank by 91.01% in the quarter ending on 30 June 2020. That was the second quarter of revenue collapse at MGM, revenues fell by 29.09% in the quarter ending on 31 March 2020. In contrast, MGM’s revenues grew at a rate of 4.33% in the quarter ending on 31 December 2019.

Finally, MGM’s quarterly common net income fell from $2.009 billion on 31 December 2019 to $806.87 million on 31 March 2020 to -$827.26 million on 30 June 2020. Thus, MGM Resorts went from a $2.009 billion common net income to a =$857.26 common net loss in six months.

How Much Cash Does MGM Resorts Generate?

MGM Resorts (NYSE: MGM) has gone from cash-rich to burning cash in six months.

MGM reported a $454.29 million quarterly operating cash flow on 31 December 2019. That quarterly operating cash flow fell to -$422.94 million on 31 March 2020 to -$662.57 million on 30 June 2020.

MGM reported a $454.29 million quarterly operating cash flow on 31 December 2019. That quarterly operating cash flow fell to -$422.94 million on 31 March 2020 to -$662.57 million on 30 June 2020.

MGM can raise enormous amounts of money. For instance, MGM resorts reported a quarterly cash financing cash flow of $1.745 billion on 31 March 2020. However, that financing cash flow fell to -$496.93 million on 30 June 2020. That means MGM pays its debts fast.

MGM can also make enormous amounts of money from investing. MGM reported a quarterly investing cash flow of $4.549 billion on 31 December 2019 that fell to $2.363 billion on 31 March 2020. However, the quarterly investing cash flow fell to -$21.97 million on 30 June 2020.

What Value Does MGM Resorts Have?

As a result, MGM (NYSE: MGM) reported $6.016 billion in cash and short-term investments on 31 March 2020 and $4.836 billion in cash and short-term investments on 30 June 2020. Thus, MGM can generate enormous amounts of cash.

Additionally, MGM has tremendous value. MGM reported total assets of $37.471 billion on 30 June 2020. However, those assets fell from $39.119 billion on 31 March 2020.

I think MGM has the money to make “work from Vegas” succeed. However, “Work from Vegas” is an unproven concept. There is no evidence, anybody will fly to Vegas to work and play.

On the other hand, I think there are millions of hardcore gamblers who will love “Work from Vegas.” For example, the working mother who needs a break from her kids and husband. That soccer mom and her girlfriends could take a working trip to vacation.

Similarly, a working couple could fly to Vegas and leave their kids with the casino’s daycare while they work all day. Or a CEO could fly his entire staff to Vegas for a working vacation and meetings.

Hence, a smart move for MGM is to add daycare and kids entertainment to its casinos. Thus, stressed out parents could work from their rooms while the casino watches the kids.

Can Work from Vegas Save Tourism?

Strangely, MGM’s work from Vegas could save the entire tourism industry. Disney (NYSE: DIS) could offer “work from Disney” at Disneyland, Disneyworld, or the EPCOT Center.

One solution could be travel packages which allow parents to work from a Disney hotel while Disney employees look after the kids. For instance, Disney, or MGM, could organize camps for kids at their resorts. It could work like this, kids could go to camp during the day while their parents work from the hotel.

Theme parks’ need help because Comcast’s (NASDAQ: CMCSA) Universal is closing two Orlando hotels on 21 August 2020. To explain, the Loewe’s Sapphire Falls Resort and Universal’s Aventura Hotel will temporarily close because of lack of guests, Theme Park Insider reports. Moreover, they have not reopened two Universal Orlando hotels; Portofino Pay and Endless Summer – Dockside, because of coronavirus.

Universal Orlando cannot fill its hotel rooms despite deep discounts for guests. Hence, Universal needs to seek new businesses such as Work from Orlando or Work from the theme park.

Work from Vegas is the Future of Tourism

Another industry that could cash in on remote work is the cruise ship industry. Carnival Corp (NYSE: CCL) could offer Work from Sea.

Onshore, hotel companies could offer Work from New York, Work from Miami, or Work from Los Angeles for remote workers who want a change of scenery or break from the kids. In the winter, ski resorts could offer Work from the Slopes. or Work from Vail.

I predict work vacations will be popular because people could stay at their favorite holiday spots for a long time. A skier or snow boarder could spend the entire winter at Vail, for example. Moreover, a surfer could spend the entire summer at the beach and a fisherman can spend several months at the trout stream.

I think there could be a huge market for work from hotels because remote workers are not returning to the office. The Partnership for New York City estimates only 8% of remote-working New Yorkers had returned to the office on 14 August 2020.

Coronavirus is changing tourism beyond recognition. I think the vacation of the future could be a long stay at a hotel where visitors combine work and pleasure.

What Value Does MGM Resorts stock Have?

MGM Resorts International (MGM) could be a value investment because it retains some value while its share price is collapsing.

MGM’s share price fell from $33.66 on 2 January 2020 to $21.81 on 14 August 2020 to $20.90 on 19 August 2020, for instance. Yet MGM will pay a 2.5₵ quarterly dividend on 15 September June 2020. Overall, estimates MGM offered an annualized dividend of 52₵ and a dividend yield of 2.44% on 14 August 2020. Hence, I think MGM is a poor dividend stock but the low dividend gives it a small margin of safety.

If you are looking for a cheap but risky dividend stock with a history of generating cash, MGM is worth a look. In particular, MGM seems to have an aggressive management that will change its business to adapt to changing conditions. However, only people who can afford a loss should buy MGM because there is no evidence that the “Work from Vegas” scheme will pay off.


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