MGM Cyberattack Damage Confined to Q3, Says Analyst

Posted on: October 9, 2023, 03:00h. 

Last updated on: October 9, 2023, 10:09h.

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

The financial impact of the recent cyberattack suffered by MGM Resorts International (NYSE: MGM) will likely be confined to the third quarter. The avenues are available for the casino operator to repair the damage done to its stock price.

MGM
Cosmopolitan Las Vegas. Operator MGM’s impact from a recent cyberattack will be mostly limited to the third quarter, says one analyst. (Image: Las Vegas Sun)

That’s the take of Macquarie analyst Chad Beynon, who, in a recent note to clients, said the fallout from a September ransomware infiltration on MGM’s domestic casino hotels will mostly be limited to the third quarter with minimal adverse effects to be felt in the current quarter.

MGM highlighted that occupancy disruptions were mostly contained to Sept (88% occupancy vs 93% last year) and expects October occupancy to reach 93% (vs 94% last year), in addition to maintaining record expectations for November driven by Formula 1,” wrote Beynon.

He reiterated an “outperform” rating and a $60 price target on MGM’s battered, which implies upside of 67% from the Oct. 6 close.

Attack Cost MGM at Least $110 Million

Last week, the Excalibur operator told investors its third-quarter earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) will be reduced by $100 million.

That figure doesn’t include approximately $10 million in one-off expenses tied to the cyber breach, carried out by the hacking group known as “Scattered Spider.” That band of cyber thieves also hit MGM rival Caesars Entertainment (NASDAQ: CZR), though that gaming company opted to pay the ransom demand.

MGM pursued a different course of action that resulted in an obvious drag on third-quarter results and 10 days of operational tumult. Still, the financial impairment from the Scattered Spider attack was mostly in line with Wall Street expectations.

“MGM said it incurred less than $10m in one-time expenses in 3Q, mostly from technology consulting services and legal fees. Additionally, management believes its cybersecurity insurance will cover the financial losses/expenses mentioned above and that they believe the issue is now contained,” added Beynon.

MGM Should Be Alright, But…

For now, MGM appears to be on solid footing following the cyberattack, and the bulk of the financial damage will be confined to the September quarter. However, the operator may encounter reputational risk.

Scattered Spider accessed highly sensitive data, including Social Security and passport numbers, of some MGM guests. Before the attack, some cybersecurity organizations were bearish on the casino operator’s cybersecurity defenses. Beynon said it’s possible some MGM rivals could take Las Vegas market share from the company in the fourth quarter.

“We think the $100m in losses from disruptions was in-line to slightly higher than expectation, but the impact to 4Q should be lower judging by their positive occupancy forecasts. Overall we think MGM came out okay, but will lose some share to Caesars, Wynn Resorts and Golden Entertainment in 3Q and likely 4Q,” concluded the analyst.