Hospitality and casino entertainment company MGM Resorts (NYSE:MGM) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 13.2% year on year to $4.38 billion. It made a non-GAAP profit of $0.74 per share, improving from its profit of $0.44 per share in the same quarter last year.

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"Our strategic growth plan to drive sustainable free cash flow from our resort operations, develop free cash flow by investing in international digital and luxury integrated resorts, and return capital to shareholders through share repurchases continued to develop in the first quarter of 2024," said Bill Hornbuckle, Chief Executive Officer & President of MGM Resorts International.

Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.

Casino Operator

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. MGM Resorts's annualized revenue growth rate of 6.6% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. MGM Resorts's annualized revenue growth of 23.8% over the last two years is above its five-year trend, suggesting some bright spots.

We can better understand the company's revenue dynamics by analyzing its most important segment, Casino. Over the last two years, MGM Resorts's Casino revenue (Poker, sports betting) averaged 23.3% year-on-year growth.

This quarter, MGM Resorts reported robust year-on-year revenue growth of 13.2%, and its $4.38 billion of revenue exceeded Wall Street's estimates by 3.7%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, MGM Resorts has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 9.1%, subpar for a consumer discretionary business.

MGM Resorts's free cash flow came in at $377.2 million in Q1, equivalent to a 8.6% margin and down 33.1% year on year.

Key Takeaways from MGM Resorts's Q1 Results

We liked how MGM Resorts beat revenue, adjusted EBITDA, and EPS expectations this quarter. Management attributed the good performance to "...strong performance at MGM China and in Las Vegas specifically at our luxury resort properties." Zooming out, we think this was a very solid quarter. The stock is up 2% after reporting and currently trades at $40.52 per share.

MGM Resorts may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.