Penn Entertainment Thursday during its earnings conference call reported revenue of $1.37 billion for the fourth quarter of 2023, a 13.2% drop compared to $1.58 billion for the same time period in 2022.
The company’s casinos continued profitability, with its northeast and south regions posting revenue drops of 0.6% and 6.3%, while the west and midwest posted revenue gains of 2.3% and 3.0%.
But Penn’s interactive segment, which reported $31.5 million in revenue, drew attention from analysts because of the operator’s ongoing collaboration with ESPN – and the $333.8 million adjusted EBITDAR loss the segment reported, narrowing the company’s Q4 2023 total adjusted EBITDAR to $112.5 million, down from $468.3 million in Q4 2022.
“Its interactive segment had a much (much) larger loss than what we were expecting, with a $334 million loss versus our $180 million loss and Consensus’s $151 million loss forecasts,” wrote J.P. Morgan analyst Joseph Greff. “… We think investors were bracing for a wide range of interactive losses, but the magnitude of the absolute dollar value is, we think, surprising.”
“It should be expected that Penn will continue supporting the launch of ESPN Bet as its customer base and product evolve, with the determining outcomes several quarters away,” noted Jefferies analyst David Katz. “We believe this element could challenge upside to the shares on the current and near term future reports.”
On the call, Penn Entertainment CEO Jay Snowden was adamant that the interactive segment was on track, heralding the November 14, 2023, launch of ESPN Bet simultaneously in 17 states as successful and seamless.
“It was no doubt a testament to the strength of our technology teams bolstered by the number one brand of sports media that the launch resulted in much higher-than-expected registration, generating over 1,000,000 new sign-ups to our industry-leading Penn Play rewards program and expanding our digital database by over 50 percent,” Snowden said. “In fact, we acquired as many first-time depositors and bettors in the first two months as we had anticipated we would generate in the first full year.”
Snowden lauded advertising campaigns featuring ESPN sports anchors Scott Van Pelt and Elle Duncan, personalities including Kendrick Perkins and Mike Greenberg, and a recent commercial during Super Bowl week with sports betting analyst Erin Dolan as proof that the collaboration was going well.
Snowden said he expects more ESPN Bet enhancements and integrations in 2024.
“ESPN Bet has helped us reach new demographics of sports fans that are incremental to our database, resulting in a 63 percent greater year-over-year parlay mix and higher volume, particularly with the NBA. Although there are improvements from where we were pre-launch, we still have a long way to go in this area, and you’ll see significant improvements throughout 2024.”
Snowden said Penn’s sports betting handle market share of approximately 7% is balanced by its share of weekly active users, “which is more like double that number. And so the fact that we’re seeing weekly active users at a very stable level means we’ve gotten a lot of people that have downloaded the app. They like the app; they’re coming back to the app on a regular basis.
“But we just don’t have our fair share in the market yet in terms of how much time they’re spending in the app. But I view that as a positive because we know that our ability to grow our share of wallet and improve monetization of our users.”
Snowden noted that product enhancements would improve market share, including same game parlay offerings, player pause live betting and game betting, and deeper integrations with ESPN.
“That’s what’s in front of us,” Snowden said. “We believe that if we can be at 7 percent handle market in early days with these things that we know are sort of the first or second inning of a game, we feel really good about where those are going to take us over the course of the next 12 months.”
Noting the previously announced and impending departures of John Levy, Benjie Levy, Aubrey Levy and Noah Levy (founders of theScore, acquired by Penn in 2021) from their roles with Penn Interactive, Snowden said a “quiet search” for their replacements started in the 4th quarter of 2023.
“We didn’t want this to get out in advance and create uncertainty,” Snowden said. “We’re very far along in that process. I can’t comment on exactly where we are, but you be rest assured that we’ve worked very deep in the process. We’re very close and we’re very excited. The level of talent we’re considering is incredible, and I think the market will see it that way when we announce what we’re doing.”
Snowden added that an announcement about replacements for the Levys should be made sometime in April.
PENN’s stock closed Thursday down 13.84% for the day at $19.39 on the New York Stock Exchange.
