The Penn National Gaming Q3 results released early Nov. 4 missed earnings expectations, dropping the share price of the Pennsylvania-based gaming company even before the opening bell.
Closing at $57.40, $PENN took a 21% loss on the day, the single worst trading day as a public company. The decline wiped away more than $2.5 billion from Penn National’s market capitalization.
This year’s Q3 results showed a 41-cent decrease year-over-year.
The company’s Q3 profit was $86.1 million, or 52 cents a share. Last year’s Q3 profits were $141.9 million or 93 cents per share.
The financial loss for $PENN came the same day as allegations of sexual misconduct against Barstool Sports’ founder Dave Portnoy resurfaced in a Business Insider ($) story.
Penn’s stock dropped pre-opening and the fall continued
$PENN stock had closed Wednesday at $72.73, but dropped about 3% pre-opening bell on Thursday, down to $70.60. Shares dropped further by mid-morning, falling to $65.14, a fall of more than 7.5%.
By noon, the share price was $60.94, a fall of more than 16% in just three hours. And it is still falling late in the afternoon.
Even before this, the company’s stock for the year was down 15.5% according to The Motley Fool.
On the other hand, the S&P 500’s gain this year is 24.1%.
Penn well off consensus projections by stock analysts
Analysts had projected between 83 and 89 cents a share for this third quarter from Penn.
The 52-cent result by Penn was way under the mark.
The quarterly report represents an earnings surprise of -38.10%.
Rating service Zacks, which had been optimistic about Penn, said the company had posted revenues of $1.51 billion for the quarter, surpassing their estimate by 0.80%. This compared to year-ago revenues of $1.13 billion.
The company has topped Zacks’ consensus revenue estimates three times over the last four quarters. But gaming stocks are at the low end of the market, according to Zacks.
Penn had exceeded expectations in its Q2 announcement when it also revealed it was buying theScore, the top sports app in Canada and third most popular in North America.
The share price had reached a three-month high of $84.84 on Sept.7, but the stock has mostly been in the low-$70s to mid-$70s during the quarter. The low in recent months was $70.08 on Sept. 21.
Analysts and $PENN CEO Snowden avoid elephant in the room
Missing the mark went unmentioned during the earnings call by Penn National CEO Jay Snowden.
The former Harvard University football quarterback focused on winnings except for a brief mention of “slowing momentum” in September due to Hurricane Ida and the Delta variant of COVID-19, especially in its southern properties.
Stock market analysts on the call likewise never mentioned the disappointing results, focusing on the future.
Penn CEO sold the upsides during the call
Snowden instead stressed the continuing rollout of the Barstool Sportsbook mobile app, now in 10 states. He said the app has a 4.8 rating on the Apple Store. And it is “unlocking huge markets” with customers who have an average age of just 28.5-years-old.
Penn’s relationship with Barstool has meant it can keep the cost of new customer acquisition to below $100 per new customer.
He also mentioned theScore is positioned to begin taking bets when Ontario, Canada allows wagering in Q1 next year during hockey season.
Snowden added that should make “cross-upsell” to other Penn products easier. He said the company believes that will make it “a one-stop destination.”
The CEO also said the company’s plan for the 3Cs – cordless, cashless and contactless – is moving ahead and should enhance the company’s ability to operate efficiently.
Headwinds ahead for Penn and other
Snowden admitted his company expects a $20 million-dollar loss in Q4 strictly due to the cost of opening up sports wagering in new markets. He said that’s a loss he expects to see continue during 2022.
He had an intriguing comment about the likelihood of sports wagering finally coming to New York early in 2022:
“I don’t think any operator will make money in New York.”
He explained with an expected tax rate of more than 50%, he doubts any operator will make money.
But that doesn’t mean Penn will automatically sit out New York, he added.
Being an operator in the Empire State should have a positive carryover for the New Jersey market, where Penn is a player.
Penn lacks tech and infrastructure
A rating service, TipRanks, this week offered a cautionary warning about what might be ahead for Penn and others in the mobile sports gaming segment just before the earnings call.
The caution was based on declining website traffic analysis and the view of Morgan Stanley analyst Thomas Allen.
Allen is cited by TipRank as saying Penn lacks the essential technological infrastructure to compete with the main sports betting firms, such as FanDuel.
The core of the caution: website traffic
The TipRank story said, “The website traffic patterns appeared to be dismal for Penn.”
“When we look at the number of total unique visits to Penn’s website on a year-to-date basis, we notice a decrease of 32.97% from January to September 2021, compared to the same time last year.”
But TipRank added, “Nonetheless, Penn should be able to improve efficiency and customer service, and thus traffic visits in the future.”
Associated real estate company beat projections
Gaming and Leisure Properties Inc., which owns much of the real estate where Penn properties are located, last week beat Q3 earnings projections by a nickel, coming in at 89 cents a share.
Revenue was $298.7 million, beating projections by $3.23 million.
The company is run by Peter Carlino, whose late father founded Penn. Carlino is a non-voting member of Penn’s board.