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  • Q1 2024: Penn shares tank following torpid ESPN Bet performance
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Penn Entertainment’s shares crashed 17.8% on Thursday (2 May) to $13.74, before recovering slightly to $15.00 per share.

The share price crash came in the wake of the release of the operator’s Q1 2024 financial results.

Topline numbers

The land-based and online gaming operator reported $1.60bn in revenue for the three-month period ended 31 March, down 4.0% from the previous year.

The firm’s reported adjusted EBITDA also fell 69.5% during the quarter to $101.4m, below market expectations.

The lacklustre performance was driven by the Penn’s Interactive segment, which reported year-on-year declines in both revenue and EBITDA.

Penn launched its ESPN Bet sports betting mobile app in Q4 2023, which had achieved a 7% US market share by February 2024.

However, the business saw limited success in its Q4 results with high promotional costs and an 84.9% decline in segment revenue.

Revenue for the division stood at $207.7m in Q1, down 11.0% from last year, when Penn operated sports betting through the Barstool Sportsbook brand.

Further losses are expected in the division going forward, according to analysts.

Analysts at JMP Securities said: “We remain hesitant on the stock as the losses for the online business continue to balloon for a company already with high leverage.”

They added that online was the primary driver of the results missing expectations, with hits to retail revenue due to bad weather already baked into projections.

Penn recorded a $114.9m net loss for the three-month period, compared to $514.4m in earnings during Q1 2023.

What’s the plan?

Penn CEO Jay Snowden argued the results were driven by bad circumstance, and that green shoots of recovery could be seen in the numbers.

He said: “ESPN Bet continued to attract new users this quarter while maintaining a disciplined approach to promotions and marketing expenses; however, our financial results were impacted by lower-than-expected hold and spend per user.

“On March 11, we launched ESPN Bet in North Carolina with a VIP event featuring ESPN’s Stephen A. Smith, highlighting our opportunity to leverage key talent at ESPN. Our Hollywood Greektown property in Detroit was also the home of several ESPN broadcasts during the NFL draft held last week.

“We believe our enhanced product offering and media integrations will result in superior experiences for our customers, leading to higher retention, share of wallet, and spend per user.”

In the earnings call, Snowden outlined 2024 would be an investment year for ESPN Bet, with leverage set to peak in Q3.

He highlighted the strength of the company’s balance sheet, which includes $1bn cash and an additional undrawn $1bn facility.

Penn commits to long-term ESPN Bet strategy

The business recently announced the hire of Disney veteran Aaron LaBerge, to serve as Penn’s chief technology officer effective as of 1 July.

The ESPN Bet product has been seen as a weakness for the business, with the app coming in 11th in Eilers & Krejcik Gaming’s recent sportsbook product testing.

Snowden added: “And then you get to 2026, a little over 1.5 years from now. And that’s incredibly exciting.

“We’ll be going live with all four growth projects in the first half of the year, and we will also be generating positive cash flow from our Interactive unit, an Interactive unit that will be continuing to grow its database and market share efficiently and profitably.

“Please keep in mind that Disney and ESPN did not agree to this alliance with Penn to be number four or number five in the market.

“Aaron LaBerge joining the team, I think, certainly speaks to that. Or the Penn annual marketing spend commitment.”

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