MGM Resorts International (NYSE:MGM) stock rallied 13% as investors reacted to a $1 billion investment in the company. IAC/Interactive Corp (NASDAQ:IAC) has since acquired a 12% stake in the casino operator as it seeks to strengthen and expand its footprint around online gaming.
The MGM Stock Rally
Investors reacted to the $1 billion investment pushing the stock up the charts conversely breaking out of a tight trading range. The rally helped shed off some of the losses accrued in the first half of the year. MGM Resorts is down by more than 50% for the year.
The IAC/Interactive investment comes barely weeks after the casino operator reported disappointing second-quarter financial results. Net earnings in the quarter slumped to a net loss of $1.52 a share compared to adjusted earnings of 23 cents reported a year earlier. Revenue in the quarter fell 91% to $289.8 million.
MGM Resorts has seen its core business around hospitality; leisure and gambling in Macau come under pressure amid the havoc causing Coronavirus. China’s net revenue dropped 95% in the second quarter to $33 million attributed to travel and entry restrictions into Macau.
Domestic revenues also slumped 90% to $151 million attributed to lockdowns imposed in the U.S to curb the spread of the deadly virus. The pandemic has hard hit the company’s operations at the Las Vegas Strip Resorts.
A $1 billion investment could not have come a better time given the challenges that the company is experiencing amid the COVID-19 disruptions. However, the investments come as a surprise given that IAC/Interactive is not known for purchasing large stakes in public companies that have little to do with the internet.
IAC/Interactive is best known for taking out stakes in small private online companies. The company also acquires competitors and integrates the acquisitions to reap the rewards of operating on a large scale. Its aggressive merger and acquisition strategy has seen it acquire the likes of Expedia. The company has also divested a number of units, including HSN TV, Ticketmaster, and Lending Tree.
A $1 billion investment in MGM Resorts provides IAC/Interactive an opportunity to own a valuable asset amid chaos. Rather than wait for the pandemic to ease, the internet and media company is looking to bet on MGM Resorts’ long term prospects.
IAC/Interactive was reportedly attracted to the MGM Resorts online gaming segment, which comprises a tiny portion of its total revenue. With the investment, the company is poised to strengthen its prospects in the $450 billion online gaming segment that is thriving amid the COVID-19 pandemic.
MGM Resorts has welcomed IAC/Interactive partnerships and plans to invite them to join its board of directors, given the massive stake acquisition. The company has had to restructure its operations in the aftermath of the COVID-19 pandemic. For starters, the company has sold nearly half of all its resorts, conversely freeing billions of dollars in cash. The company has also had to cut staff and furloughed others as part of a cost-saving drive