Penn reports first profitable digital quarter but shares fall on net income decline

Penn Entertainment reported its best-ever quarter for its digital segment but the market reacted unfavorably Thursday to the company’s year-over-year net income and adjusted EBITDAR declines.

Topline numbers

Penn’s overall Q4 revenues increased by a little less than 1% year-over year, but net income margin was 1.3%, compared to 2.8% in the year prior. The company reported $20.8m in net income margin for Q4 2022 compared to $44.8m for Q4 2021.

Adjusted EBITDAR was $468.3m for the fourth quarter of last year, a year-over-year decrease of 2.5% from the same time in 2021. Adjusted EBITDAR margins were 29.5%, a decline of 110bps year-over-year.

CEO Jay Snowden attributed the declines in part due to severe weather in parts of the US during December.

Meanwhile, Penn’s adjusted EBITDA was $438.3m, an increase of 18.8% year-over-year.

News nugget

Penn reported its online casino gaming and sports betting division was contribution positive in the fourth quarter of 2022, the first time in company history. Penn joins FanDuel parent company Flutter Entertainment as the only major US sports betting operator to report a profitable quarter for its online gaming divisions, though more could follow as additional companies report earnings in the coming weeks.

Penn Interactive reported adjusted EBITDA revenues of $5.2m for the fourth quarter of 2022. This came despite $10m in losses from just bets placed by Jim “Mattress Mac” McIngvale on the 2022 World Series.

The company’s interactive division reported $208m in revenues for Q4 2022 compared to $157.6m in Q4 2021. These figures also include the company’s 31 managed retail sportsbooks along with the Barstool digital sportsbook and iCasino platform.

Adjusted EBITDAR for Penn Interactive increased to $5.2m in Q4 2022 from a loss of ($5.9m) in Q4 2021. For calendar year 2022, the company reported ($74.9m) in digital division losses compared to ($35.4m) in losses for calendar year 2021.

Much of the success can be attributed to the success of Penn’s theScore Bet iGaming and sportsbook in Ontario, Snowden said during Thursday’s earnings call. Ontario is the company’s top North American iCasino and sportsbook market and gross gaming revenues have increased for both offerings each month since July 2022.

Snowden said he expects profitability to continue growing in 2023, especially after the company transitions to its in-house tech stack for the Barstool Sportsbook in the US like it already has for theScore Bet in Ontario.

Best quote

Penn Enteratinment CEO Jay Snowden: “We’re anticipating at roughly $100 million swing and profitability in our interactive segment in 2023 as we are just beginning to scratch the surface of what we believe will be a tremendous long term growth opportunity for us.”

Best question

Snowden was asked during Thursday’s earnings call about gaming expansion in Georgia and Texas, two heavily-populated potential gaming markets without commercial casinos or sportsbooks that have been a major focus of lobbying efforts in their respective 2023 legislative sessions. Snowden said Penn doesn’t have much of a presence in Georgia, but that Texas would be a major focus.

The company’s investments in multiple Texas horse tracks set up Penn for a major role in any gaming expansion, Snowden said during Thursday’s earnings call. The Penn CEO said he was spending time personally on the legalization efforts underway in Texas this year.

It remains too early to see when – or if – commercial casinos or sportsbooks would come to the Lone Star State, but Thursday’s call makes it clear Penn sees a role. Penn is the nation’s largest regional casino operator, and the company clearly sees itself as a potential brick-and-mortar gaming and/or mobile sportsbook operator should Texas approve these new gaming forms.

Current trading and outlook

Penn stock traded down at Thursday’s market open but was bouncing back as of noon eastern time as part of a strong morning for the market overall. The company’s stock is down more than 25% for the past 12 months but was up more than 18% in January 2023.

For 2023, Penn is guiding to a revenue range of $6.15bn to $6.58bn and an Adjusted EBITDAR range of $1.875bn to $2bn. Those figures do not include the closing of the company’s remaining outstanding portions of Barstool sports, which will finalize this year.

The financial outlook “reflects our momentum in both our Retail and Interactive segments and the potential for further economic headwinds as well as increased supply in a few of our markets,” Snowden said Thursday.

Penn is set to launch its Barstool mobile sportsbook in Massachusetts in March after opening a retail sportsbook at its Plainridge Park casino in the state earlier this week. No other state launches are planned so far for the rest of the year, but Snowden said Thursday the company expects to ramp up marketing efforts ahead of the 2023 football season.

The company also expects to fully integrate its in-house tech platform for the Barstool Sportsbook during MLB All-Star weekend in mid-July of this year.