Ostensibly, Penn National Gaming’s third quarter report issued Thursday seems to be positive. The gaming operator reported revenue of $1.5 billion, a year-over-year increase of $382.1 million and a $157.3 million increase from the same period in pre-COVID 2019.
But net income for the quarter was $86.1 million and net income margin was 5.7%; last year’s third quarter saw net income of $141.2 million and net income margin of 12.5%. Net income for the third quarter of 2019, however, was $43.7 million, with a net margin of 3.2%.
Penn Gaming CEO Jay Snowden admitted the third-quarter figures were affected by Hurricane Ida in the south region and regional flareups of the Delta variant of COVID. Snowden also cited $7.5 million in expenses for new state launches of the Barstool Sportsbook app and $12.5 million used for a sports betting ballot initiative in California as one-time expenditures affecting the bottom line.
Joseph Greff, a Morgan Stanley analyst, wrote in a statement that it was a mixed third-quarter for Penn National Gaming and that the results can’t all be attributed to the one-time events.
“Even adding back all of these items,” Greff wrote, “Penn would have missed consensus by 2%. So not as clean of a quarter as regional peer BYD (Boyd Gaming). While Penn’s Southern region registered the largest EBITDA variance relative to our estimates (Ida), the Northeast and Midwest regions also fell short.
“Going into earnings, we knew Ida was going to have an impact on Mississippi/Louisiana (as it did for BYD and others) but thought Penn’s other regions (margins) could offset; it didn’t.”
Greff added that Penn’s improved revenue results in October are a positive.
Jeffries analyst David Katz agreed that Hurricane Ida and the Delta variant, “as well as increased competition in specific markets,” affected Penn’s third-quarter report. Katz wrote that accelerated product launches in the third-quarter are positive results.
But in terms of overall performance, “We expect a negative reaction to the earnings miss,” Katz wrote.
In October, Penn National completed its acquisition of theScore, the Canadian sports betting app and media company, to pair with Barstool Sportsbook. Snowden said that theScore is “uniquely positioned to capitalize on the legalization of single-event sports betting in Ontario.”
But the anticipated launch of sports betting in the Canadian province is now expected to be delayed until the first quarter of 2022 instead of the last quarter of 2021, according to Snowden.
Citing other investments, including the launch of the Barstool branded live-dealer studio in New Jersey (a collaboration with online gaming developer Evolution), Snowden said that the company expects a loss of “only $20 million” in the fourth quarter of 2021 for its interactive business.
“Our goal continues to be developing bespoke products and features, with features and promos that are experiential, fun, and differentiated,” Snowden said. “Rather than relying primarily on paid advertising, our promos often include unique back-branded merchandise and VIP Barstool experiences that simply can’t be found elsewhere. We expect this approach is the right long-term strategy and will result in a best-in-class margin profile, and loyalty and retention.”
