For the first 20 minutes of Thursday’s investors’ conference call, Penn Entertainment CEO Jay Snowden went to great lengths to explain the operator’s less-than-stellar results for 1Q24.
Earlier in the morning, Wall Street analysts had posted quick analyses of the results, noting the operator’s net loss of $114.9 million for the quarter, a year-over-year decrease in revenue from $1.67 billion in 1Q23 to $1.60 billion, a loss of $0.76 per share compared to the expected loss of $0.59 per share, and a sharp decline in EBITDAR to $256.2 million compared to $478.2 million.
Penn’s interactive segment, which includes the launch of the highly anticipated ESPN Bet six months ago, also returned subpar results with an adjusted EBITDA loss of $196.0 million.
Snowden attributed the results in part to less handle per user. “We didn’t see moment from Q4 into Q1 from a handle per user perspective,” he said.
“We also recognize not all the results are where they need to be at this stage,” Snowden added. “In addition to the impact of hold … we also know monetization as a huge opportunity for us. We’ve seen a lower spend per user so far with the ESPN Bet than market average and compared to our internal expectations. We believe we can chalk this up to two primary factors. Number one, we brought new betters into the ecosystem … that are currently more casual bettors. We should expect their engagement with the app and overall spend to grow over time as they become more comfortable, experienced and knowledgeable with the app and sports betting in general.”
Snowden stated that the second factor is not generating a fair share of wallet with experienced and VIP bettors.”
According to Snowden, Penn’s long-term goals with ESPN Bet remain the same: building a significant database of younger, highly engaged online sports betting betters and fans, building long-term relationships with best-in-class product experiences, providing compelling cross-sell opportunities over time, and offering other offerings throughout the operator’s ecosystem.
“The path to getting to this point has not been without some bumps in the road as no nascent digital strategy ever is,” Snowden said. “But we are now strongly positioned to deliver on our vision and deliver on the shareholder value that comes with it.”
Snowden emphasized that the roadmap originally laid out for its alliance with ESPN and ESPN Bet remains the same: investment in 2024, diminishing losses in 2025, and possible profitability in 2026.
Wall Street analysts had mixed responses to Penn’s 1Q24 results. David Katz of Jefferies wrote, “While the land-based performance was relatively in-line versus our forecast, digital came in below ours and consensus estimates. We expect the lower-than-expected results to weigh on the shares modestly. ESPN Bet will remain a key focal point as its customer base and product continue to evolve, with the determining outcomes still quarters away. PENN could be among the more volatile names in the near term versus peers, in our view.”
Analyst Joseph Greff of J. P. Morgan wrote that Penn’s interactive loss of $196 million was more than “our recently increased loss estimate of $187 million and Consensus’ $178 million and reflects the early days and ramp of ESPN BET, lower OSB hold (4.4% in 1Q24) that has dented much of the OSB operators in the 1Q24, and, spend per user that lower than expected, which Penn believes is due to identified gaps in product (parlay-related mix we presume, among other gaps).
“Overall, we think these 1Q24 results, in isolation, are in line with broad expectations, with its regional land-based properties negatively impacted by bad weather in January and February.”
At close, Penn’s stock price on the Nasdaq was $15, down $1.44.
