Penn Entertainment remains positive on its long-term growth prospects for the full year despite reporting a 3.8% decline in revenue to $1.61 billion (£1.29 billion/1.50 billion euros) during the first quarter.
Revenue fell across all core businesses during the three months to March 31. This includes the interactive segment, which has been a growth area for Penn Entertainment in recent times.
Land-based gaming revenue was lower in each of the Northeast, South, West and Midwest segments. This, says Penn, is due to the severe weather that hit the US in January and February, which reportedly severely affected visitor numbers.
As for Interactive, which includes the ESPN Bet brand, revenue here also fell year over year as a result of unfavorable retention of major sporting events.
However, CEO and Chairman Jay Snowden was undeterred by the revenue decline. He states that the company is in a strong position to continue and record growth throughout the rest of 2024. This will come with the help of several initiatives.
“We look forward to unveiling additional product enhancements and exclusive media integrations with ESPN ahead of the 2024 football season,” said Snowden. “Our enhanced online product offering will help engage, reactivate and retain our expanding database while advancing our strategy to create a highly differentiated experience for sports fans and bettors.”
Penn Boosts Development with New Chief Technology Officer
To accelerate technology and product improvements, Penn last month announced Aaron LaBerge as its new chief technology officer. LaBerge will officially join the company in July.
As CTO, LaBerge will be responsible for driving Penn’s technology strategy and execution. He will lead a multinational team of technologists and also serve as Penn Interactive’s chief commercial leader.
Snowden says LaBerge, former chairman of The Walt Disney Company, will play a key role in product development, which in turn will help Penn achieve its growth goals.
“Mr. LaBerge brings more than 20 years of experience at The Walt Disney Company, most recently serving as CTO of Disney Entertainment and ESPN,” Snowden said.
“We are extremely excited about Mr. LaBerge’s arrival. He is uniquely qualified to help us create the best digital experience for our customers while further deepening our connections and integrations with ESPN.”
Land-based revenue fell overall in the first quarter
Taking a closer look at Penn’s first-quarter performance, it’s clear where the decline came from. Gaming revenue fell 5.1% to $1.26 billion, while hotel, food, beverage and other revenue came in at $348.6 million.
As for its segments, the Northeast business continues to be Penn’s main source of revenue, generating US$648.7 million. This figure, however, was 2.3% lower than last year, mainly due to bad weather in the first quarter.
Elsewhere, revenue from physical operations in the South segment fell 5.2% to US$298.5 million, while revenue from the Central West segment also fell 1.4% to US$291.2 million. As for the West, this was the best performing land segment in terms of decline, with revenue falling just 0.7% to $128.8 million.
“Across the portfolio, we continue to capitalize on cross-selling opportunities from our retail sportsbooks, which has helped sustain our momentum at our Ohio properties and re-energize properties like Plainridge Park in Massachusetts and Hollywood Casino at Kansas Speedway,” Snowden said. .
“With winter now behind us, we are seeing great progress on our four growth projects, all of which remain on budget and on schedule.”
Double-digit decline for Penn Interactive
For Interactive, revenue was 11.1% lower in the first quarter, to $207.7 million, following unfavorable retention at larger sporting events. This segment covers all Penn group online sportsbooks and casinos, including ESPN Bet.
The brand went live in North Carolina in mid-March, marking the latest phase of an ongoing expansion strategy. In parallel with this, Penn acquired the sports betting licenses of Wynn Interactive in New York. This paves the way for Penn to launch ESPN Bet in the state in 2024.
In other non-digital ESPN Bet news, Penn last month opened ESPN Bet’s first retail facility at the Hollywood Casino at Greektown in Detroit, Michigan.
“ESPN Bet continued to attract new users while maintaining a disciplined approach to promotions and marketing expenses,” Snowden said. “However, our financial results were impacted by lower-than-expected retentions and per-user spend.
“While we are pleased with ESPN Bet’s early adoption and engagement results, our focus this football season will be improving our product offerings, including an updated home screen and expanded parlay betting offerings. Simultaneously, with our partners at ESPN, we will unveil additional ESPN Bet media integrations into their industry-leading digital media app and fantasy product.
“We believe our enhanced product offering and media integrations will result in superior experiences for our customers, leading to greater retention, wallet share and spend per user.”
Penn Falls to Net Loss in First Quarter
In terms of spending, operating expenses in the first quarter were 10.5% higher, at US$1.63 billion. Penn’s main outflow was gaming costs, which increased 20.6% to $879.5 million.
Penn noted an additional $106.1 million in non-operating costs, comprised primarily of interest expense. In contrast, Penn in the first quarter of last year reported $514.5 million in additional income, helped by a $500.8 million gain in real estate investment trusts (REIT) and $83.4 million from the acquisition of Barstool.
As such, Penn was left with a pretax loss of $127.5 million, in contrast to last year’s profit of $682.3 million. The group received US$12.6 million in tax benefits and discounted US$200,000 in losses from non-controlling interests.
This resulted in a net loss of $114.7 million in the first quarter, compared to a net profit of $514.5 million in 2023. Additionally, adjusted EBITDAR fell 46.4% to $256. 2 million, and adjusted EBITDA fell 69.5% to US$101.4 million.
Truist backs Penn to survive without ESPN Bet
The quarterly results come after a new report from Truist Securities last week opined that Penn would continue to operate normally if ESPN Bet failed, saying it would be kept afloat by its Interactive division.
At the same time, Truist upgraded Penn’s rating from Hold to Buy. That was downgraded to Hold last August when Penn revealed he would relaunch Barstool Sportsbook as ESPN Bet in a $1.5 billion deal with the broadcasting giant,
Penn’s divestiture of Barstool Sports resulted in the sportsbook being sold back to Barstool founder Dave Portnoy for $1. ESPN Bet launched in 17 states in November 2023.
Truist praised ESPN Bet’s growth, admitting that while it’s still early days, Penn is in a good position to capitalize on that success.
Analysts Reiterate ‘Buy’ on Penn
Penn reported Q1 adjusted EBITDA 8% below Truist and Wall Street expectations, with Interactive’s net revenues falling 17% below Truist’s estimates. Penn highlighted weak stability in the first quarter, although Truist believes Wall Street will ignore this.
However, Truist reiterated its ‘buy’ opinion on Penn in an analyst note in response to Penn’s first-quarter earnings, pointing to the “attractive” risk/reward when accounting for low expectations.
Despite Penn Interactive Sector reporting EBITDA losses of approximately $196 million, worse than Wall Street’s estimate of $178 million, Truist noted that key KPIs are performing well. Penn saw 96% annual growth in online sports betting in the first quarter, as well as a 51% increase in online sports betting gross gaming revenue (GGR), even with just a 4.4% share.
Penn’s retail sector performed largely in line with expectations, with its adjusted retail EBITDA in line with Truist and Wall Street expectations.
Truist also noted that despite severe weather in the early stages of the first quarter that impacted Penn and many other operators, the company still achieved record EBITDA in February and March alone at eight of its properties.
Additionally, Penn’s promotional expenses fell from 16.7% of Q4 value to 4.8% in Q1. Penn has seen 71% growth in its digital database since the launch of ESPN Bet.
In terms of online casino, Penn reported a record GGR that increased 32% year over year, with monthly active gaming users increasing 166%. Truist highlighted improved cross-selling abilities between ESPN Bet and Hollywood Casino, as well as expectations that the Hollywood iCasino app will further boost Penn’s performance when it goes live.
