Penn National Gaming has rebranded to Penn Entertainment. The name change highlighted Penn National Q2 earnings on Aug. 4 and is meant to reflect the evolution of a company which started by operating a single race track and now has a portfolio that includes 44 casinos, online sports betting, online casinos, and integrated entertainment.
Quarterly earnings of $0.15 per share fell well short of Zacks Consensus Estimate of $0.51 per share. This compares to earnings of $1.17 per share a year ago. These figures are adjusted for non-recurring items.
Key figures for Penn National Gaming in Q2 2022
- Revenues of $1.6 billion, an increase of 5.2% year-over-year;
- Adjusted EBITDAR of $504.5 million, a decrease of 14.0% year-over-year;
- Adjusted EBITDA of $476.5 million, an increase of 1.4% year-over-year; and
- Net income of $26.1 million and net income margin of 1.6%, as compared to net income of $198.7 million and net income margin of 12.9% in the prior year.
Over the last four quarters, Penn National Gaming has not been able to surpass consensus EPS estimates. However, during the Q2 call, Snowden pointed out that $PENN beat consensus on revenues and EBITDAR and generated sequential upside over last quarter due to “performance of our interactive segment and strong results at our retail operations despite a tough comp against the second quarter last year.”
Penn National Gaming changes name
The Wyomissing-based Penn National Gaming started with one track – Penn National Race Course – fifty years ago. Today, its casinos are spread across twenty states. Penn National acquired a 36% share of Barstool Sports for $163 million in January 2020. Barstool online sportsbook launched in Pennsylvania in Sept. 2020 and the online casino followed in March 2021. In Oct. 2021, Penn National completed its acquisition of theScore for $2.0 billion in cash and stock.
On the name change and rebrand to Penn Entertainment, CEO Jay Snowden said:
“Over the past few years, Penn has transformed our business through a highly differentiated strategy, focused on organic cross-sell opportunities, which is reinforced by our investments in our market-leading retail casinos, sports media assets, owned technology, including a state-of-the-art fully integrated digital sports and online casino betting platform and an in-house iCasino content studio.”
Cashless gaming at casinos
Cashless, cardless and contactless, “3cs” technology, is available at 9 casinos in three states with 12 more expected to offer the technology by the end of 2022. (Yes, you can still use cash). Through Q2, Penn reported 1.1 million mychoice app downloads and 70,000 mywallet customers.
“Guests that use our mobile wallet and who engage with us via online offerings are not only more loyal, but they also play at a higher spend level when visiting a property and generate a higher total value in engaging with us across multiple channels,” said Snowden.
Barstool Sportsbooks a hit with younger visitors
Barstool retail sportsbooks were lauded during Q2 earnings for “resonating with the younger demographics and creating meaningful cross-sell opportunities.”
There are 24 Barstool-branded sportsbooks at Penn Entertainment casinos across 10 states. Excluding Nevada, $PENN reported a 10% market share for retail sportsbook handle from Jan. 2022 to May 2022.
Four Barstool Sportsbooks opened at Pennsylvania casinos in the span of a year:
- June 2022: Hollywood Casino at at The Meadows
- March 2022: Hollywood Casino at Penn National Race Course
- Dec. 2022: Hollywood Casino Morgantown
- August 2021: Hollywood Casino York
Barstool sportsbook migration
In early August, Penn Entertainment (formerly Penn Gaming) migrated theScore Bet in Ontario to its in-house risk and trading platform.
Penn said during the earnings call they are on track to migrate Barstool sportsbook in-house sometime during Q3 2023.
“Post migration, we’ll begin to realize the full benefits of our in-house technology stack including meaningful cost synergies and improved marketing and promotional capabilities,” added Snowden.
What does the migration and Penn having a fully-owned tech stack mean?
- An expanded product offering
- Deeper media and betting integration
- System stability
- Personalized promos
- 3rd party cost savings
Penn National on completing the purchase of Barstool
Purchasing the remaining part of Barstool was always part of the plan for Penn Entertainment. When Penn first purchased a 36% stake of Barstool, the plan was to increase its ownership stake to 50% after 3 years (or earlier at Penn’s election) with an incremental investment of approximately $62 million, “consistent with the implied valuation at the time of the initial purchase, and has a path to establish control and full ownership of Barstool Sports.”
“Once we close on the full acquisition of Barstool in Q1 of next year, we’ll be able to show you on a combined basis what Barstool and theScore media business looks like. Not just as it relates specifically to the P&L, but how we’re thinking about the ecosystem that we’re continuing to build out and different products and services and ideas and monetization opportunities with that audience down the road that we’ve been working on for some time now, and we’re very excited about.”
Pennsylvania is “a one-off”
Bank of America Merrill Lynch’s Shaun Kelley asked about the promotional environment. Here is Snowden’s answer regarding PA casinos.
“I think a lot is being made out of this, and a lot about what the promotional environment is. I think if you look at Pennsylvania specifically, there’s a lot of moving parts because you have a number of category four satellite casinos that have opened over the course of the last 18 months. So you’re seeing some shift because new supply has entered the marketplace. And I think the existing operators or existing properties are trying to figure out what is that right mix of reinvestment now that there is more competition. So Pennsylvania to me is a one-off.”
What analysts are saying about $PENN National Q2 earnings
In Scott + Jake’s “Earnings and More” newsletter, Penn’s omni-channel strategy and mychoice rewards program were called the “largest miss” by Credit Suisse but also may present the largest opportunity.
“In part, we think because the Barstool brand does not resonate with that customer base,” said the analysts at Credit Suisse.
On Aug. 5, Credit Suisse lowered $PENN price target to $66 from $76. It keeps an “outperform rating.” Deutsche Bank adjusted Penn’s price target to $36 from $38 and maintains a”hold rating.”
Lead image of Hollywood Casino Morgantown c/o Katie Kohler