A Wall Street analyst weighed in on Penn Entertainment’s Investor Day, during which the company pre-released third-quarter results and highlighted progress with ESPN Bet.
Barry Jonas, managing director with Truist Securities, said Penn also outlined the path ahead for Interactive, which could hold meaningful EBITDA generation in 2026.
“The third quarter release was generally in line to us/Street, with softer retail EBITDA, somewhat expected given company commentary and state-reported gaming revenue offset by better than feared Interactive losses. We remain positive on the ESPN Bet opportunity, with the Street ascribing little to no value, and will closely monitor September online sports betting reports for signs of the enhanced product’s early progress. We remain Buy-rated and make no changes to our price target at this time.”
Management expects third-quarter adjusted retail EBITDA of between $465 million and $475 million, about 6% below Truist and the consensus at the midpoint ($470 million), Jonas said. No segment results were broken out, though management did call out $10 million of negative impact due to both unfavorable hold rates in the Northeast and volume declines in the South due to weather and construction disruptions. Management also mentioned the South segment received about $14 million in insurance proceeds to EBITDA in the third quarter, leading to a tougher comp. Management reiterated that the health of the consumer remains stable.
For Interactive, the expected third-quarter EBITDA loss range of $90 million to $100 million came in more favorable than Truist and consensus of $125 million to $128 million and the company’s previous guide of $115 million to $135 million. Management attributed the positive change to more favorable hold, parlay mix, and lower promotional expenses.
“While New York’s online sports betting launch was delayed until the fourth quarter, we believe there was no meaningful boost to third-quarter earnings, given Penn’s measured approach to the high tax state’s launch,” Jonas said.
Penn will release full third-quarter data and host its earnings call on Nov. 7.
Penn continues to upgrade ESPN Bet after rolling out a first wave of improvements for football season. A milestone of the ESPN partnership is still to come, with the introduction of ESPN account linking in November. Penn shared some ESPN Bet KPIs from September showing that monthly users grew 161% year over year, with parlay users up 211%, Jonas said.
Gaming revenue grew 151% year over year, with NGR up 403%, driven by 430 basis points higher hold (9.1% versus prior 4.8%) and 608 basis points higher parlay mix (27.5% of total handle versus prior 21.4%).
Overall, Penn has seen a 9% online sports betting hold in the second and third quarters versus 6.7% in the second and third quarters of 2023, driven by a higher parlay mix at 27% of handle (versus 22%) in the same timeframe.
“Penn noted the ESPN Bet app continues to be the No. 3 sportsbook in weekly average users, seeing 16% overall user share,” Jonas said. “Penn is encouraged by the ESPN Bet vision in the U.S., given continued growth from theScore Bet in Ontario, now in its third year of operation.”
On the igaming side, Penn continues to see sizable growth of its Hollywood Casino brand, with monthly active users up 233% year over year, gaming revenue up 53%, and NGR up 63%.
Handle from games developed by Penn’s first-party igaming studio accounted for 26% on its platform, with four of the top five titles. Penn’s standalone icasino platform is on track to launch in Pennsylvania in the first quarter of 2025, with additional jurisdictions to follow.
“In a generally flattish growth environment on the land-based side, Penn has seen year-to-date market-share improvements in 16 of 24 regional markets,” Jonas said. “Penn’s industry-leading retail margins are nearing 34% in 2024 earnings, about 200 basis points higher versus pre-COVID with improvements attributed to labor efficiencies, enhanced procurement of goods and more effective marketing, somewhat offset by higher gaming taxes and increased (administrative expenses).”
With 2024 nearly in the books as an ESPN Bet investment year with key product improvements, Penn sees 2025 holding a narrower Interactive loss, balance-sheet deleverage, the launch of Penn’s standalone icasino product, and the opening of Hollywood Joliet in the second half of 2025 ahead of schedule. For 2026, Penn is predicting an interactive inflection to profitability as its remaining three growth projects (Hollywood Aurora, Hollywood Columbus, and M Resort in Las Vegas) are on track and on budget for the first half of 2026, Jonas said.
Other key takeaways from Investor Day:
- Penn launched ESPN Bet in New York on Sept. 27, where it’s seen a 296% higher average daily handle per user and a 100% higher deposit from the state’s cohort versus in existing ESPN Bet states.
- Penn’s loyalty database has seen 1.8 million digital members (85% growth) since ESPN Bet launched. Since 2019, the average age of Penn’s active database has fallen from 53 to 44.
- For each 5% increase from converting players to omnichannel, Penn estimates $50 million of annual gaming revenue lift.
