Penn Entertainment stock fell as much as 15% on Thursday morning after the company reported its first full quarterly earnings with numbers from ESPN Bet. Penn stock closed Thursday at $15 a share, down 8.76%.
For the first quarter ending in March, the gaming company reported revenue of $1.61 billion, roughly in line with consensus estimates of $1.63 billion. That said, revenue from its online segment, which includes ESPN Bet, was $208 million, lower than consensus estimates of about $237 million.
Losses per share were $0.76, also lower than consensus estimates of $0.59. The stock (Nasdaq: PENN) tumbled immediately after the results, before settling at a roughly 9% drop later in the morning.
“We expect the lower-than-expected results to weigh on the shares modestly,” Jefferies analysts said in a Thursday note after the numbers were released. “ESPN Bet will remain a key focal point as its customer base and product continue to evolve, with the determining outcomes still quarters away. Penn could be among the more volatile names in the near term vs. peers, in our view.”
This is the first full Penn quarter to include data from the recently launched ESPN Bet, a new sportsbook built in collaboration with the Disney unit. Last year the company severed its relationship with Barstool Sports—selling the media company back to founder Dave Portnoy for $1 and shuttering its Barstool Sportsbook. In its place, Penn inked a 10-year, $2 billion agreement with Disney to create ESPN Bet. The move was a bet that ESPN’s name and its vast sports empire could create a steady flow of marketing and new customer leads without the soaring costs of other sportsbooks.
Penn’s online revenue of $208 million was down a bit from the first quarter of last year ($233.5 million), a fact that likely reflects how much newer ESPN Bet is now as compared to Barstool Sportsbook at the same time last year. Penn’s digital segment posted adjusted EBITDAR losses of $196 million. Heavy losses are to be expected in the early quarter of a sportsbook’s lifecycle, as it launches in a number of new states and uses promotions, sign-up bonuses and ad buys to announce its arrival.
Penn CEO Jay Snowden said in a statement that some of the online segment’s results were also negatively driven by unfavorable sports outcomes. He added that the company was expecting to announce new integrations with ESPN’s digital and fantasy products, which he said will lead to “higher retention, share of wallet and spend per user.”
“While we are pleased with the early ESPN Bet adoption and engagement results, our focus heading into this football season will be on enhancing our product offerings, including a refreshed home screen and expanded parlay offerings,” Snowden said.
On his ESPN show Thursday afternoon, Pat McAfee teased ESPN Bet for its underwhelming numbers. One of the network’s most popular hosts, McAfee joked about the sportsbook’s struggles, complained to a producer about an ESPN Bet chyron appearing on screen during the rant, then gave ESPN Bet a mock pep talk.
“The truth is coming out,” McAfee said. “ESPN Bet has a lot of room to grow.”
(This article has been updated in the first paragraph with Thursday’s closing share price, and in the final two paragraphs with information on Pat McAfee’s chiding of ESPN Bet.)
