Penn National Gaming reported 2021 Q4 results and although revenue beat forecasts, profits were below expectations.
CEO Jay Snowden said during Q4 earnings call he expects the US interactive operations of Barstool Sportsbook will be profitable this year, with the entire interactive division profitable in 2023.
Penn National acquired a 36% stake in Barstool Sports in Jan. 2020 and they plan to acquire the remainder of Barstool in early 2023.
Snowden said in a press release:
“Our disciplined marketing approach and increased scale at Penn Interactive set us apart from the competition as we generated a lower-than-expected EBITDA loss in our Interactive segment in the fourth quarter despite launching sports betting operations in two new states (Iowa and West Virginia), iCasino in West Virginia and integrating theScore. These results were also achieved despite a frenzied competitive environment.”
Wyomissing, PA-based Penn National Gaming is North America’s largest regional gaming operator with 44 properties across 20 states. Barstool Sportsbook first went live in Pennsylvania. Currently, the sports betting app is in 12 states. Barstool online casino is available in Pennsylvania and three other states.
Key figures and highlights from Penn National Gaming Q4
- Revenues of $1.6 billion, an increase of $545.1 million year-over-year and $231.3 million versus 2019;
- Net income of $44.8 million and net income margin of 2.8%, as compared to net income of $12.7 million and net income margin of 1.2% in the prior year and net loss of $92.9 million and net loss margin of 6.9% in 2019;
- Adjusted EBITDAR of $480.5 million, an increase of $115.1 million year-over-year and $81.1 million versus 2019;
- Adjusted EBITDA of $369.0 million, an increase of $113.1 million year-over-year and $65.0 million versus 2019; and
- Adjusted EBITDAR margins of 30.6%, as compared to 35.6% in the prior year and 29.8% in 2019
- Penn approved a share repurchase authorization of up to $750 million over three years on Feb. 1, 2022.
Penn National Gaming customer base
- Rewards program members (mychoice): Over 25 million members
- mychoice loyalty app: 750,000 downloads, up 23% in Q4
- Mobile wallet (mywallet): 30,000 users
- myheroes loyalty program for veterans: approaching 100,000
Snowden defends Portnoy
The same day $PENN released its Q3 results, Business Insider published a story about allegations of sexual misconduct against Barstool President Dave Portnoy. That day (Nov. 4 2021) $PENN took a 21% loss. Portnoy called it “a hit piece, 8 months in the making.” He has fiercely defended himself since then, sharing texts messages from the women and email exchanges with Business Insider.
The day before Q4 results, Business Insider published another story that alleges he filmed sex without their consent. Portnoy responded in a blog post that he plans to sue Business Insider and journalist Julia Black who wrote the stores.
Snowden started the Q4 earnings call by addressing the recent story about Portnoy in Business Insider.
“I first wanted to address the article on Dave Portnoy that dropped last night from the same paywall subscription-based publisher as the last article and just so happened to be on the same day of our earnings call three months ago. The allegations are made from anonymous sources made about Dave and his personal life. Dave has responded publicly and many of you have probably seen that. I wanted to respectfully ask that if you have read, or plan to read the article, you also watch Dave’s response. Two, we also give this time to play out. There will undoubtedly be more to come in the upcoming days. Lastly, that we keep today’s call focused on Penn and our earnings release and our exciting future outreach.”
Penn National plans to purchase remainder of Barstool by early 2023
“Looking ahead a year from now, we have the opportunity to fully own Barstool Sports, which, together with theScore, willfully mark our transformation into a major media and entertainment company,” said Snowden who also called Barstool “great partners.”
Purchasing the remaining part of Barstool was always part of the plan. When Penn first purchased a 36% stake of Barstool in Jan. 2020, 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.”
When asked if the leadership team or content creators at Barstool would have to be licensed at certain ownership levels in order to create content for the Barstool app, Snowden said they are continuing to work through it internally and it is “TBD.”
Comments from Penn National Gaming Q4 Earnings
Comments from CEO Jay Snowden
Q4 marketing and market share
“We didn’t change the way we marketed in the fourth quarter. It was irrational as you can ever imagine the amount of money that was being burned that I’m sure we’ll hear about from future earnings calls this quarter. We grew our market share and were operating at better margins than anticipated. Our market share increased in places we’ve been live like Pennsylvania and Michigan. We did all that without participating in the really aggressive discounting from most of the others.”
Penn National relying on organic marketing
“We’ve all seen the incredible level of marketing spend in this space which we all know is not sustainable in a competitive environment. We have not and will not jump into that fray. $PENN remains focused on channeling our investments into ownable and differentiated products, experiences, and technology platforms for our end-users that will have long-term benefits versus spending irrationally on short -erm marketing initiatives that bear questionable returns. We are also fortunate to have two dynamic and growing customer acquisition funnels in Barstool Sports and theScore, together with retail casinos and sportsbooks that provide us with highly effective organic marketing opportunities without the need to incur massive losses to compete.”
Measuring sports betting market share by handle
“While that is a useful metric, particularly when a state first launches, it doesn’t mean as much when those incoming dollars generated from that handle are completely offset by marketing and promotions. While we think this point is becoming more widely understood, unfortunately, because of the various ways states report sports betting metrics, investment communities use handle to compare sports betting companies’ performance. Fortunately, there are a few states that report net gaming revenue which we believe is a more relevant measure of performance. In states like Pennsylvania and Michigan, our NGR market share underscore the benefits of our profit-focused strategy.”
Hold percentages at Barstool Sportsbook
“Some quarters work for you and some work against you. There are times you can have a really good hold in a quarter and then Mattress Mack beats you for $5 million. We have the balance sheet to take action like that which is why Mattress Mack and VIP players enjoy betting with us. Over the long term, we’ve modeled in a 7-7.5% hold. I would imagine that is about the average for the industry.”
Same game parlay and live betting at Barstool Sportsbook
“We launched same game parlay, which we call parlay plus, during NFL season. It was very popular. We saw the percentage of total handle go up significantly and it probably drove some of the hold percentage.”
“I would like to see our in-game betting percentages continue to increase. They have been. Some sports in the U.S., it’s hard for in-game. Basketball moves too fast. Baseball is perfect in-game. We will be live for same game parlay for baseball season which I think will be a nice shot in the arm for us.”
Barstool-branded online casino games
“Developing in-house games has led to steady month-over-month growth in handle and revenue. Over 20% of our handle has come from games we’ve created. Our ability to leverage Penn Games Studios and develop Barstool Blackjack and Barstool slots allows us to capitalize on cross-sell from the Barstool audience.”
A younger demographic at Penn National casinos
“Our properties are still seeing strong visitation from the younger demographic as we are continuing to reimagine our casinos with offerings like Barstool Sportsbook and other food and beverage and entertainment options that will help drive long-term retention of this demographic.”
Hollywood Casino Morgantown early results
Hollywood Casino Morgantown opened in mid-December. It’s Penn National’s fourth casino in PA.
“We are encouraged with the early results as we were able to reach into a new market with approximately 80% of our rated business being driven by new members to our active mychoice database.”
Brokerage optimistic about $PENN
Schaeffer’s Investment Research said that analysts haven’t weighed in on $PENN’s Q4 earnings but have been optimistic towards $PENN.
Schaeffer reports that of the 12 in coverage, eight carry a “buy” or better rating, while four say “hold.” Plus, the 12-month consensus target price of $69.19 is a whopping 47.6% premium to current levels.
Short sellers have been eyeing the equity. Short interest rose 3% in the last reporting period, and the 9.73 million shares sold short now make up 5.8% of the stock’s available float. Should some of these bears start to hit the exits, PENN may surge even higher.
A broader look shows the stock with a 50-day put/call volume ratio of 0.48 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 98% of readings from the past year. This means that while calls are still outnumbering puts on an overall basis, the latter are being picked up at a much quicker-than-usual clip.
