Penn National Gaming’s fourth-quarter 2021 earnings call produced some promising financials for the gaming operator.
Revenue was $1.57 billion in the fourth quarter, an increase of 13% from the $1.36 billion generated in the fourth quarter of 2019, the most comparable pre-pandemic measure. Net income was $66 million, compared to a loss of $91 million in the fourth quarter of 2019.
And on February 1, 2022, Penn National’s board approved a share repurchase authorization of up to $750 million over three years, reflecting confidence, according to a statement, in the company’s long-term prospects.
CEO Jay Snowden noted other developments, including the scheduled launch of sports betting in Ontario, Canada in April; Penn’s 2021 acquisition of theScore, the Canadian sports media and betting platform; the recent launch of sports betting in Louisiana; and anticipated launches of sports betting in Maryland and Ohio.
Penn National also opened Hollywood Casino Morgantown in Southeastern Pennsylvania on December 22, 2021.
But before delving into Penn’s fourth-quarter financials, CEO Jay Snowden opened the call by addressing allegations against Barstool Sports founder Dave Portnoy. A Business Insider story, published February 2, accused Portnoy of sexual misconduct.
Penn National currently has a 36% stake in Barstool Sports.
Snowden noted that a previous article by the same publication occurred three months ago and “just happened to be on the same day of our (third quarter) earnings call.” Snowden asked those on Thursday’s call to do three things: If they read the article, or planned to read it, to also watch the response Portnoy posted last night.
“Like last time, we give this time to play out,” Snowden added. “There undoubtedly will be more to come in the coming days, just as what transpired three months ago. And lastly, we keep this call focused on Penn and our earnings release.”
Snowden emphasized Penn National’s regional gaming assets “that generate significant and sustainable free cash flow,” he said.
“The balance sheet strength and financial flexibility has afforded us the opportunity to pursue the evolution of our differentiated omnichannel strategy, which includes a thriving and profitable media business anchored by theScore and our investment in Barstool Sports,” Snowden said, “and a rapidly growing interactive business with a clear path to near-term profitability and a long-term path to meaningful value creation.”
Snowden said that Penn National also has the opportunity to fully own Barstool Sports over the next year. Penn acquired its 36% stake in Barstool in January 2020. On the third anniversary of that acquisition, Penn’s share contractually goes to 50%. According to Snowden, there will be a put call right after the 50%.
“We anticipate taking that to 100 percent,” Snowden said. “So there really isn’t sort of a decision process. We look forward to being the owners of Barstool 100 percent. They’ve been great partners of ours, a hyper-growth sports media business. They’ve grown their revenue over the last two years somewhere close to 150 percent in total, and they’re profitable.”
Analysts had mixed reactions to Penn National’s report. David Katz, equity analyst at Jeffries LLC, wrote in a report that he expects “a generally neutral reaction to the quarterly results, which were mixed, as land-based margins came in modestly below prior quarters and our expectations, offset by narrower-than-expected losses in digital. With digital development still the focus for the stock, management commentary on the scale and scope of Barstool and TheScore near-term and long-term targets and how they are valued remains our key issue.”
J. P. Morgan analyst Joe Greff wrote that Penn’s midpoints “are right in line with our recent forecasts.” Greff added that the share repurchase authorization is close to 10% of Penn’s current market cap.
“We note that (Penn’s) liquidity ($2.5 billion at year-end 2021, inclusive of $1.9 billion of cash) and year-end 2021 net leverage (4.1x lease adjusted net leverage) can easily support this buyback,” Greff wrote.
