Penn Entertainment, owner of ESPN BET, announced positive developments with its US sports betting platform, causing the stock to rise approximately 4% immediately after the report.
Lower Promotional Spending
According to a third quarter earnings call, Penn Entertainment’s interactive division posted a $90 million adjusted EBITDA loss, which was far better than the previously guided midpoint of a $125 million EBITDA loss. The good news was due to an increase in parlays which generally have a higher hold than straight bets and decreased promotional spending.
Although the news was favorable, when the public does win those higher-risk/higher-reward wagers, it is bad news for the sports betting platforms’ bottom line. And so it was in October that the public hit the sportsbooks hard with those multi-leg wagers, which is why CFO Felicia Hendrix did not recalibrate the $485 million at the midpoint of annual EBITDA guidance.
Parlay betting accounted for 28.3% of September’s total handle, which was up 5.8% from last September when the app was branded Barstool Sportsbook. ESPN BET’s handle showed a 61% rise over last October and a 42% quarter-over-quarter increase. It should be noted that ESPN BET launched in November of 2023, replacing Barstool Sportsbook.
Penn CEO Jay Snowden said, “ESPN BET certainly draws in a more casual mass market base. We think that’s great for the long term; higher propensity to bet on parlays and player props is terrific. Maybe a lower average wager, but we are seeing that average wager continues to grow from where we were even just a few weeks ago.”
Nevertheless, Snowden anticipates the average size bet will increase in the first quarter of next year and into March Madness, the men’s and women’s national college basketball tournament.
“We would expect to see [average wager size] continue to grow throughout football season as we head out into March Madness as well,” Snowden said. “It’s a big focus for us right now. We think retention; we’re in a really good place, but continuing to improve monetization will be key for us.”
Analysts Primarily Bullish on Penn
Bernie McTernan of Needham & Company, an investment and banking analyst firm, doubled down on his projection as Penn stock being a buy at $26 per share after the call.
“The highlight on earnings for us were the strong underlying fundamentals for ESPN BET in October, with handle growth showing acceleration from September to October,” McTernan said.
Truist analyst Barry Jonas reaffirmed his buy on Penn Entertainment stock at a $23 per share target price and said, “All eyes remain on ESPN BET, with encouraging KPIs as PENN continues to improve the product.”
Mike Hickey of Benchmark’s Investment Banking team was more tepid in his outlook on the Pennsylvania-based gaming company, advising a hold on the stock with no target price, saying, “We believe it is unlikely that PENN will reach breakeven in the Interactive segment in 2025 as projected, unless they either shift focus away from market share growth or hold back on investments in new markets.”
