Penn Entertainment: Digital challenges, land-based growth

In the latest quarterly earnings conference call, Penn Entertainment’s CEO, Jay Snowden, highlighted a notable trend of “lower loss sequentially” expected to continue into 2025, alongside enhanced strategies for optimizing expenditures in partnership with ESPN. However, while Penn outperformed certain expectations, it also fell short in key metrics for the fourth quarter of 2024.

During the call on February 27, Snowden expressed optimism about the company’s future, emphasizing potential growth compared to historical performance. He remarked on the presence of “green shoots” within the organization, stressing the need for further efforts to fully leverage the partnership with ESPN to unlock its comprehensive value.

On the digital gaming front, Penn reported a revenue of $275 million (£218 million/€264.7 million) for Q4. Notably, the company recorded an adjusted EBITDA loss of $109.8 million, which marked a remarkable improvement of $224 million compared to the same quarter in 2023. Despite these gains, the figures contributed to an overall performance that did not meet analyst expectations.

While Penn exceeded Truist’s adjusted EBITDA forecast with a total of $320.7 million, this figure was still 1% lower than broader market anticipations. Following the earnings call, Penn’s stock price saw fluctuations, dropping from an opening bell valuation of $20 to $19.28, eventually closing at $20.39.

The land-based operations yielded impressive results with an adjusted EBITDAR of $461.2 million, outperforming market predictions. Conversely, digital losses matched expectations at $110 million, illustrating a mixed outlook for net revenue, which remained close to projections set by Truist.

In a show of confidence, Snowden announced plans for the company to repurchase “at least” $350 million in its own stock over the coming year.

Growth Slow and Parlays Struggling

Since the launch of ESPN Bet in November 2023, it has struggled to establish itself among the leading sports betting platforms, with FanDuel and DraftKings retaining dominant market shares. ESPN Bet’s goal of capturing 20% market share by 2027 currently appears ambitious, as it holds less than 5%, a target executives hope to achieve by the end of this year.

One critical hurdle for ESPN Bet lies with its ability to capitalize on parlay betting, a lucrative segment that comprises at least 50% of wagers on platforms like DraftKings and FanDuel, as per Axios. In contrast, parlays account for only 30% of bets placed on ESPN Bet, which hampers its revenue potential.

Snowden: Future Enhancements on the Horizon

Looking forward, Snowden promised additional integrations and cross-promotional strategies for ESPN Bet. The company recently introduced personalized betting experiences and enhanced live streaming features designed to attract and engage consumers further. This approach aims to leverage Penn’s omnichannel capabilities to drive growth.

Notably, Penn’s demographic is shifting towards a younger audience, and the company is expanding its footprint with new retail locations. The Hollywood Joliet venue in Illinois is slated to open in the fourth quarter of 2025, with additional locations planned for 2026. Meanwhile, Penn has launched online casino offerings in Michigan and Pennsylvania over the past year.

However, Snowden recognized that Penn is operating ESPN Bet as if it were already a major player in the market. He indicated that if the business does not meet its goals by year-end, the company would need to reassess its operational approach, particularly its marketing expenditures.

“Our current cost structure is designed for scalability, reflecting our expectations and those of ESPN. Yet, if performance trends do not align with these expectations, adjustments will be necessary,” Snowden noted regarding their strategic positioning.

Insights from Analysts

Truist analyst Barry Jonas pointed out that should ESPN Bet fail to reach a significant inflection point soon, Penn might need to reduce its marketing expenditures and streamline its cost structure as it approaches the three-year anniversary of the agreement with ESPN in 2026, at which point both parties retain opt-out clauses.

Meanwhile, Deutsche Bank analyst Carlos Santerelli conveyed optimism regarding the online casino segment, noting a shift in perception among executives regarding its value. Santerelli remarked, “We interpret the commentary as an acknowledgment of the asset value linked to technology and branding, indicating a propensity to monetize these assets should online sports betting performance remain subpar.”