Based on third-quarter earnings commentary from Strip operators, Wall Street analysts have been preaching caution for Las Vegas for the rest of the year and starting 2025.
The Nevada Gaming Control Board reported last week that Strip gaming revenues fell for the third consecutive month compared to last year. Although the drop has been primarily due to baccarat hold, it has raised concerns. MGM Resorts International and Caesars Entertainment reported their earnings last week and Wynn reports today.
“Given the continued challenges in the regional segment and our view that incremental caution when forecasting Las Vegas is prudent, we have curbed our fourth quarter, 2025, and 2026 estimates for both segments,” said Deutsche Bank analyst Carlo Santarelli.
Barry Jonas, an analyst with Truist Securities, said the Strip and regional casinos “continue to battle the peak/flattish narrative.” Caesars, however, reported strong hotel occupancy and average daily rate revenue, he noted.
“Vegas is trending softer, with the state’s third-quarter gaming revenue down 7%, though the underlying metrics, such as normalized gaming revenue (+3%) and excluding baccarat (+4%), look healthier,” Jonas said. “Additionally, our most recent look at online room rates suggests a softer fourth quarter, though Caesars management recently disputed our room-survey data, given online rates are just one of several channels and represent only 10% of Caesars property mix. Of note, Caesars expects cash room-rate revenue growth year over year.”
Jonas pointed out that management doesn’t expect a material impact from this year’s F1 race in November, with EBITDA expected to be in line or slightly down compared to the $18 million EBITDA uplift from F1 race last year.
“We also note that there is still time for bookings to catch up for F1, which is known to be tracking behind expectations,” Jonas said. “For 2025, CES in January appears to be tracking strong, though management highlighted a tough room-revenue comp in the first quarter with the Super Bowl.”
Carlo Santarelli, an analyst with Deutsche Bank, said when it came to MGM reporting its earnings that the results are “likely to have surprised to the downside,” specifically in Las Vegas. EBITDAR was down 7% year over year.
“We believe the result is likely to add further concern around the health of the Las Vegas Strip into a difficult fourth-quarter comparison period,” Santarelli said. “The miss in Las Vegas was further compounded by a relatively meaningful miss at MGM China, where net revenue came in below our consensus forecasts, while margins were more than 200 basis points below forecasts as well.”
MGM management noted, however, that the 2025 outlook for the Strip is broadly favorable and underpinned by cash-rate growth.
“That said, management also noted that it would be lapping the $60 million to $70 million EBITDAR benefit from the Super Bowl in the first quarter. The company will also begin room renovations on the 4K standard rooms at MGM Grand.”
John DeCree, an analyst at CBRE talked about how investors MGM investors’ looking forward to what he called an “easy” third-quarter comparison from last year’s cybersecurity attack, which cost MGM about $80 million, including $37 million of business-interruption insurance proceeds.
“However, even when combining this comparison benefit with tempered expectations after July’s low baccarat hold, MGM still missed consensus,” DeCree said. “Management attributed this to additional variance in high-end baccarat play, which was down $80 million, due to both lower volumes and lower hold.”
For MGM, high-end baccarat play accounts for about 30% of table drop year to date, which likely causes more structural volatility in the company’s earnings than commonly understood, DeCree said.
“Beyond high-end table play, most Las Vegas key performance indicators remained encouraging, including 4% year-over-year growth in slot handle, a 2% increase in occupancy, and 3% average daily room rate growth,” DeCree said.
Looking ahead, DeCree expects “the noisy comparisons to persist” in Las Vegas for at least two to three quarters. In the fourth quarter of 2023, MGM benefitted from about $70 million of favorable hold and $30 million of incremental EBITDA uplift from F1.
“We are modeling the fourth quarter on a hold-normalized basis and expect the EBITDA uplift from F1 to be less than last year, implying about a 10% year-over-year EBITDA decline,” DeCree said. “We anticipate a similar decline in first quarter, facing a tough comp to last year’s Super Bowl, which contributed about $60 million of incremental EBITDA, alongside the start of a substantial room renovation program at MGM Grand.”
DeCree said the room renovations will be disruptive throughout the year, but should be at least partially offset by the company’s new $200 million EBITDA-enhancement program. “We expect the vast majority of this program to benefit the Las Vegas Strip operating segment.”
