Keith added MGM on the short side to our Real-Time Positions at $10.24. MGM's TREND resistance is $10.71 with no TRADE support to $9.41.
The Las Vegas Strip is back in a slump. Slot volume, which we believe is the most important barometer of the Strip, has declined for five consecutive months and the bleeding will likely continue through Q1 2013. Slot revenue has outpaced slot volume growth for years as the player payout has declined. We don’t think a strategy of “price increases” through worse player odds is sustainable. Table volume ex baccarat has also worsened recently, which suggests the only lifeline for the Strip is the always volatile baccarat business. Demographics are partly to blame. Younger generations are just not interested in slot machines. The average casino visitor continue to rise, with 65+ year olds rising to 35% of the visitors. And Baby boomers won't live forever.
While we are positive on Macau, MGM is still generates the majority of its EBITDA in the US and most of that on the LV Strip. We are negative on the long-term fundamentals of domestic gaming. Over the near-term, we see earnings risk. We're currently 3% below the Street for Q3 EBITDA for MGM.