Shares in MGM Resorts surged 14% after IAC/Interactive announced that it had accumulated a 12% stake for an aggregate of $1 billion as the internet and media company seeks to enter the online gaming market.
MGM rose to $21.64 in midday trading on Monday, while IAC (IAC) dropped 1.3% to $131.31. MGM said that IAC’s investment will bring vast experience for both its entertainment and online commerce businesses.
“IAC’s family of brands and digital expertise are a great complement to the direction MGM (MGM) has been taking both in leveraging our digital assets to enhance our guests’ experience and building a leading iGaming and sports betting business in BetMGM,” said MGM chairman Paul Salem.
IAC said that “MGM presented a “once in a decade” opportunity for IAC to own a meaningful piece of a preeminent brand in a large category with great potential to move online”. The media and technology company believes that similar to Disney’s advantages over pure-play streaming companies, MGM is also an aspirational brand, which could offer gaming consumers, including the 34 million M-life Rewards members, a wider range of services, both physical and digital, than any competitor.
“What initially attracted us to MGM, besides its leadership in leisure, hospitality and gaming, was an area that currently comprises a tiny portion of its revenue – online gaming,” said IAC chairman Barry Diller. “IAC’s foundational concept of seeking opportunities to build interactive businesses is our base rationale – there is a digital first opportunity within MGM Resorts’ already impressive offline businesses, and with our experience we hope we can strongly contribute to the growth of online gaming.”
Diller believes that “MGM could be one of the largest direct marketers on the internet as online gaming grows, and online direct marketing is an area IAC know well. Furthermore, IAC sees additional opportunities beyond gaming for theatrical onsite activities, including in the regional casinos, as well as the potential for expansion into new worlds of media.
MGM shares have plunged 35% this year as the stay-at-home restrictions tied to the coronavirus pandemic have led to disruptions of its leisure and hospitality businesses. Looking ahead the $18 average price target indicates 17% downside potential in the shares over the coming year.
Following IAC’s investment, Deutsche Bank analyst Carlo Santarelli maintained a Hold rating on the stock with a $13 price target (40% downside potential), saying that he expects MGM to now garner more attention given that the euphoria around sports and iCasino continue.
“While we don’t expect IAC to serve as the stock promotion vehicle we’ve seen elsewhere in the space, we do believe the investment puts MGM more firmly on the map for investors within the online gaming and sports betting environment,” Santarelli wrote in a note to investors. “While the deal does not improve the operating circumstances in Las Vegas or help the near to medium term free cash flow dynamics of the company, it does highlight that MGM does in fact intend to be a major player in the online environment.”
The rest of the Street shares Santarelli’s stock outlook. The Hold analyst consensus breaks down into 8 Holds, 2 Sells and 2 Buys. (See MGM stock analysis on TipRanks)
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