MGM Resorts’ Strategic Buyback Amid Mixed Earnings: A Test of Shareholder Value Creation

The glittering mgm Resorts properties along the Las Vegas Strip, symbolizing the company’s iconic status and strategic focus on shareholder returns.

MGM Resorts International reported a challenging first quarter of 2025, with adjusted earnings and revenue declining amid headwinds in key markets. Yet, the company’s decision to approve a $2 billion share repurchase program underscores its confidence in its valuation and long-term prospects. This move comes as MGM has reduced shares outstanding by 43% since early 2021, leveraging buybacks to boost per-share metrics. The question remains: does this strategic shift offset the current struggles, or is it a risky bet on an uncertain recovery?

Financial Performance: A Mixed Bag

MGM’s Q1 2025 results revealed a 2% decline in consolidated net revenues to $4.3 billion, driven by weaker performance at its Las Vegas Strip Resorts (-3%) and MGM China (-3%). Adjusted EBITDA fell 5% to $637 million, while diluted EPS dropped to $0.51, a 24% year-over-year decline. The numbers reflect both operational challenges and strategic shifts:

Ask Aime: "Will MGM's $2 billion share repurchase program counterbalance Q1 earnings drop?"

1. Las Vegas Strip:
2. Gaming strength: Slot win hit a record high, rising 7% to $545 million, with improved margins (9.6%). Table games also grew 4%.

3. Lodging struggles: Average daily rates (ADR) fell 7% due to the absence of the 2024 Super Bowl, which reduced revenue by ~$65 million. Occupancy remained robust at 94%, but RevPAR declined 6% to $242.

4. MGM China:

5. Macau’s slow recovery weighed on results, with main floor table games drop falling 5%. Adjusted EBITDAR dropped 5% to $286 million.

   Ask Aime: "Will MGM's $2 billion buyback boost per-share value?"

6. BetMGM Turnaround:

7. A bright spot, with EBITDA turning positive at $22 million (vs. a $32.6 million loss in Q1 2024). Online sports net revenue surged 68%, while iGaming grew 27%.

The stock has underperformed peers like Wynn Resorts (WYNN) and Las Vegas Sands (LVS) over the past year, reflecting investor skepticism about its valuation and debt.

The $2 Billion Buyback: A Vote of Confidence or a Risky Gamble?

The new buyback program adds to the remaining $337 million under the November 2023 plan, signaling MGM’s belief that its shares are undervalued. Key points:
- Share count reduction: Since early 2021, shares outstanding have fallen 43%, boosting EPS and EBITDA per share.
- Catalysts for the move: CFO Jonathan Halkyard cited “attractive valuations” and the need to capitalize on market volatility.
- Financial flexibility: MGM holds $2.27 billion in cash, with a net debt of $6.4 billion. While manageable, further debt could constrain future flexibility.

The buyback’s success hinges on MGM’s ability to sustain or improve core operations. Positive signs include:
- The MGM Rewards program surpassing 50 million members, driving loyalty and repeat bookings.
- A $200 million EBITDA enhancement plan, with over $150 million expected in 2025.
- Las Vegas Strip’s April 2025 hotel performance, projected to set a new record, aided by strong group bookings.

Strategic Crossroads: Risks and Opportunities

MGM faces critical risks that could test its strategy:
1. Macau’s Slow Recovery: MGM China’s revenue decline highlights reliance on a market still recovering from pandemic restrictions.
2. Regulatory Headwinds: MGM Digital’s EBITDA loss widened due to Dutch regulations and tough comparisons in Sweden.
3. Super Bowl Impact: The 2024 event skewed Q1 2025 comparisons, but lodging remains vulnerable to external events.

Offsetting these are strategic moves:
- Japan’s Integrated Resort (IR): A ¥428 billion ($2.7 billion) equity commitment for a 43.5% stake in Osaka’s IR project, positioning MGM for long-term growth in Asia.
- Digital Expansion: BetMGM’s success in Brazil and other markets could drive future revenue growth.

Conclusion: A Prudent Move with Caution

MGM’s $2 billion buyback is a bold but prudent move, leveraging its financial flexibility to return capital to shareholders at a time of perceived undervaluation. The reduction in shares outstanding has already enhanced per-share metrics, and the company’s core gaming operations—particularly in Las Vegas—remain robust.

However, the path forward hinges on sustaining BetMGM’s turnaround, navigating Macau’s recovery, and avoiding further debt-driven risks. With Adjusted EBITDA expected to improve by $150 million in 2025, and April’s record hotel performance as a positive indicator, the buyback may prove justified.

The reduction in shares outstanding has been dramatic, but further buybacks will require sustained cash flow generation.

Investors must weigh the near-term headwinds—such as lodging volatility and regulatory risks—against MGM’s long-term strengths: its iconic Las Vegas brand, BetMGM’s potential, and disciplined capital allocation. For now, the buyback signals confidence, but the jury remains out until operational metrics stabilize.

In a sector where shareholder returns are critical, MGM’s strategy is a calculated gamble—one that could pay off if its diversified portfolio and strategic initiatives align with recovery trends. The next few quarters will be pivotal in determining whether this move is a masterstroke or a misstep.