Share prices of casino stocks have plummeted since the start of 2020 due to the COVID-19 pandemic. Though stocks in many other impacted sectors have recovered from March lows, share prices in the gambling industry remain down by as much as 50% year to date. This puts them in value stock territory, assuming the businesses in question fully recover.
While both Wynn Resorts (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM) will both gain from a rejuvenated casino business, one is well ahead in terms of benefiting from the growing online sports betting and gambling markets.
Counting on Macau
Wynn has a much more concentrated hotel and casino portfolio than MGM. In 2019, Wynn received 70% of its total net revenue from its two Macau properties in China. Most of the balance came from Las Vegas, as the company’s Encore Boston Harbor property only opened in June of that year.
The pandemic brought virtually all of Wynn’s revenue-generating activity to a halt. In the second quarter of 2020, its total revenue was down by a whopping 95% year over year.
Wynn is counting on being able to return to operations at its properties in a way that resembles the pre-pandemic norm, but investors remain dubious — the stock’s year-to-date performance lags MGMs.
More diverse, with a catalyst
In contrast, MGM Resorts has 29 hotel and casino properties in the U.S. and China. Las Vegas provided almost half of its 2019 revenue, while China accounted for 22%. But more than a quarter of its revenue came from regional domestic properties.
That regional footprint is an advantage the company believes it can leverage. Its properties outside of Nevada are in Maryland, Massachusetts, Michigan, New Jersey, Ohio, and Mississippi. But what it calls its “largest U.S. growth opportunity” isn’t a physical presence at all: It’s the company’s BetMGM online casino and sports betting app joint venture with GVC Holdings.
The company reported that BetMGM was the leading online gaming app in New Jersey as of July 30, with an approximately 19% market share. The company is also working to expand its BetMGM client base by partnering with major league sports teams including the National Football League’s Denver Broncos, Las Vegas Raiders, and Tennessee Titans, and the National Hockey League’s Detroit Red Wings. Setting up retail sportsbooks inside stadiums is part of its strategy to grow the brand.
Growth inside value
That MGM has a growth segment to lean on while its traditional casinos recover gives value investors a good reason to buy. Now, traditional valuation measures are difficult to rely on due to pandemic-driven circumstances, and for investors who are confident of a recovery in travel and leisure, now may be a good time to buy any casino stock. But MGM has an advantage in its online business.
MGM’s partner, GVC Holdings, just raised its annual earnings outlook, saying in its recent earnings release that BetMGM “continues to make great progress and is firmly on track to be the leading operator in the U.S. online sports-betting and iGaming markets.”
BetMGM is currently live in eight states, and is expected to launch in another three by the end of the year. With MGM Resorts shares still trading well below their pre-pandemic levels, investors have an opportunity to be a part of both a recovery and a growth engine, making this stock an opportune value investment.