Before the open this morning, MGM Resorts (MGM 25.05, -0.14, -0.56%) announced a new business restructuring plan, called "MGM 2020", which will strive to lower costs, improve efficiencies, and drive stronger revenue growth through a digital transformation.
The news comes on the
heels of yesterday's better-than-anticipated December report from the Macau
Gaming Inspection and Coordination Bureau which stated that December gross
gaming revenue jumped by 16.6% -- marking the best growth since August and a
sharp improvement from November's +8.5% figure. So, it has been an eventful
couple of days for the casino, hotel, and resort operator as the stock looks to
continue rebounding off multi-year low levels reached last week.
To rewind a bit, a few years ago, MGM launched its "Profit Growth Plan" that focused on creating a "one company" approach to operations, while implementing best practices to drive Adjusted EBITDA growth and margin expansion. Essentially, that's a fancy way of saying the company cut personnel and eliminated redundant operations. From a profitability standpoint, the plan worked as it achieved Adjusted EBITDA benefits of about $400 mln at the end of 2017, better than the original expectation of $300 mln.
That plan set the stage for this new MGM 2020 initiative as it has already established important centralized functions and developed operational expertise to drive best practices. With the company positioned to build upon its Profit Growth Plan, MGM is expecting to deliver another $300 mln of annualized Adjusted EBITDA, including $200 mln by the end of 2020 and $100 mln by the end of 2021.
There are two primary pieces to this plan: a cost savings component, and a revenue generating component. For the former, about $100 mln is expected to be derived from labor savings, with another $50 mln coming from improved sourcing. For the latter, MGM plans to re-invest the cash flow generated from its property development activities into specific technology advancements. More specifically, this could include improving the customer experience through data, price, digital, and loyalty capabilities. These new technology investments (digital transformation) are expected to generate $100 mln of Adjusted EBITDA by the end of 2021.
In the press release, MGM also commented that it had a strong finish to 2018, while also highlighting its newly opened properties such as MGM Cotai, MGM Springfield, Park MGM, and NoMad Las Vegas. Furthermore, the company sees exciting opportunities in professional sports. On that note, in late November, MGM announced an exclusive partnership with Major League Baseball, making it the first-ever official gaming partner of MLB. The combination of MLB and MGM will include team sponsorships, data usage in gaming, promotion across MLB-owned media platforms, and domestic and international activities at MLB events.
To conclude, MGM has a few "irons in the fire", so-to-speak, that should help push its profitability and growth higher, and perhaps, its stock price as well.