UBS maintains MGM Resorts stock rating on rising acquisition costs By Investing.com

UBS reiterated a Neutral rating on MGM Resorts with a $39 price target, just above the $37.45 share price and slightly below InvestingPro’s $38.58 fair value estimate. The key concern is rising customer acquisition costs at BetMGM as competitors spend unsustainably on sports-betting keywords and ads, with heavier competition expected ahead of the World Cup and NFL season. UBS also noted a first-quarter decline in active players, though MGM’s mix is shifting toward higher-value customers.

Analysis

MGM is increasingly a barbell between resilient physical casino cash flow and a structurally deteriorating digital JV economics profile. The key second-order effect is that aggressive keyword bidding in sports betting is not just pressuring BetMGM's near-term CAC; it is likely forcing slower customer payback across the whole U.S. online betting stack, which should favor the largest balance sheets and the most efficient media buyers while compressing returns for subscale operators. That argues for a wider dispersion trade within gaming rather than a blanket sector view.

The market is probably underestimating how seasonal catalysts can temporarily mask the deterioration. Into the World Cup and NFL season, headline handle growth may re-accelerate, but if acquisition spend rises faster than retention, EBITDA quality worsens even as top-line metrics improve. That creates a trap for investors who focus on gross gaming revenue alone; the cleaner tell will be active player quality and promo intensity rather than raw traffic.

The contrarian angle is that the current setup may be more negative for near-term valuation multiples than for long-run franchise value. If BetMGM is already shifting toward higher-value players, a lower-volume, higher-ARPU mix could support eventual margins once the industry rationalizes, but the transition likely takes multiple quarters and requires weaker competitors to pull back first. Until then, every incremental dollar spent on acquisition is likely being competed away, so consensus may be too quick to extrapolate durable online profitability from a temporary demand spike.

Key Decisions for Investors

• Short MGM vs long a higher-quality omnichannel gaming peer basket on a 3-6 month horizon; thesis is that MGM's digital JV is the main earnings uncertainty while the market is paying for stability. Target a 1.5-2.0x downside/upside skew if BetMGM CAC stays elevated through the next quarter.
• Buy MGM put spreads into the next earnings window, sized for event risk rather than outright directional conviction. The setup is attractive if the stock re-rates lower on margin commentary even with stable revenue, with limited premium outlay and defined loss.
• Avoid chasing any pre-World Cup rally in online betting names until acquisition spend normalizes; use strength to fade into the June-July catalyst. The risk/reward is poor if handle improves but promo spend expands faster than net revenue.
• Long physical casino operators with cleaner domestic cash flow versus pure-play online exposure if the market continues to reward visible EBITDAR. MGM's brick-and-mortar assets should hold up better than the digital narrative, but the stock may not reflect that until BetMGM uncertainty clears.