BetMGM Winning Market Share, Analyst Bullish on Parent Company

Posted on: January 21, 2021, 09:57h. 

Last updated on: January 21, 2021, 12:59h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Entain Plc (OTC:GMVHY) released its fourth-quarter trading update earlier today and there’s good news for MGM Resorts International (NYSE:MGM). That’s because the read-through on the data is that the companies’ BetMGM unit is thriving.

BetMGM Note
Part of the BetMGM sportsbook at MGM Grand Detroit. An analyst is bullish on the operator. (Image: Mlive.com)

The UK-based firm tells investors that BetMGM’s online revenue jumped 130 percent year-over-year in the final three months of 2020 and that the joint venture has approximately 18 percent share in the markets in which it operates.

Entain’s update comes just days after MGM Resorts said it won’t up on an $11.06 billion takeover offer for its BetMGM partner. That unit is structured as a 50/50 joint venture.

“Additionally, revs increase 130 percent in 2020 as the BetMGM app is the fastest-growing download in the industry in the US,” said Macquarie analyst Chad Beynon in a note to clients today.

The company increased its outlook for full-year 2020 US net revenues, which is now expected to be $175 million to $180 million, vs the prior guide of $150 million to $160 million,” Beynon said.

Beynon doesn’t cover Entain, but he reiterates an “outperform” rating on MGM with a $36 price forecast. That implies upside of about 16 percent from the Jan. 20 close. That’s a Street high target, and Macquarie is one of just two brokerage firms with the equivalent of an “outperform” on MGM shares.

Smart to Say ‘No’

When the Bellagio operator initially revealed its acquisition offer for Entain earlier this month, the Ladbrokes owner swiftly rejected it, claiming it undervalued the company. MGM proposed exchanging 0.6 shares for each Entain share, meaning the target’s investors would have owned 41.5 percent of the combined entity.

Data indicate it was wise of Entain to ask for a higher offer. The Coral owner said its net gaming revenue (NGR) surged 41 percent in the fourth quarter, marking the 20th consecutive quarter of double-digit growth.

MGM isn’t being left out in the cold. The BetMGM platform is live in 11 states, with Michigan set to make it 12 tomorrow. In addition to being the fastest-growing sports wagering app, BetMGM commanded 21 percent market share in the states in which it launched between January and November 2020, according to Macquarie’s Beynon.

The analyst values BetMGM at $5 billion, meaning MGM’s 50 percent stake is worth $5 on its share price. He points out that there’s a sizable gap between the Mirage operator’s BetMGM interest and the valuations markets ascribe to DraftKings (NASDAQ:DKNG) and Penn National’s (NASDAQ:PENN) minority interest in Barstool Sports.

Vegas Rebound

While enthusiasm for iGaming and sports betting expansion is palpable in the investment community, MGM is still the largest operator on the Las Vegas Strip – a trait some analysts currently aren’t keen on given Sin City’s sluggish rebound from the coronavirus pandemic.

Strip venues accounted for 50 percent of MGM’s earnings before interest, taxes, depreciation and amortization (EBITDA) in 2019. Beynon says Wall Street is too negative on the operator’s prospects in its home market.

Going forward, we believe that the Vegas recovery, something that we think most sell-siders are denying, remains the most attractive piece of the MGM investment story,” said the analyst.

He projects MGM Sin City EBITDA will decline this year, next year, and in 2023. But his forecasts call for less bad results than consensus estimates.

“We expect that leisure travel will be healthy following vaccination progress, and we remain surprised that others believe the recovery will be that slow,” adds Beynon.