PENN Entertainment, Inc. (NASDAQ: $PENN) is North America’s leading integrated gaming and entertainment provider. Its primary revenue source is its portfolio of over 40 hotels and casinos across 20 US states. Well-known brands in PENN’s retail casino portfolio include Hollywood Casino, L’Auberge, and Margaritaville Resort Casino.
The Pennsylvania-based company released its fourth quarter and full year 2023 results on Thursday, February 15, 2024. While retail operations strengthened, PENN’s fledgling interactive segment continued to report losses. PENN also announced it had agreed to acquire Wynn Interactive’s New York mobile sports wagering licenses.
Q4 Financial Results
For the quarter ending December 31, 2023, PENN generated revenues of $1.37 billion. The retail segments performed well, with 10 properties achieving record Q4 revenues. However, the interactive division weighed heavily on results.
The interactive segment, comprising online sports betting platform ESPN BET, reported revenue of $31.5 million. According to PENN, it has experienced solid revenue growth and a rise in monthly active users in the months since its launch. However, the segment recorded an adjusted EBITDA loss of $333.8 million due to higher-than-expected promotional expenses relating to the launch of the ESPN BET platform.
The company reported a net loss of $358.8 million compared to a net profit of $20.8 million last year. Adjusted EPS amounted to a loss of $1.75 compared to an adjusted EPS of $0.22 in Q4 2022.
For 2023, PENN’s revenues were flat at $6.4 billion. However, it swung to a net loss of $491.4 million from a net profit of $221.7 million last year, driven by over $900 million in losses related to the sale of Barstool Sports in August 2023.
ESPN BET Launch & Growth
A key development during Q4 was PENN’s launch of the ESPN BET online sportsbook in partnership with ESPN. This new platform attracted strong interest, registering over 1 million first-time depositors (FTDs) and record betting volumes.
However, the exceptional uptake came at a steep cost in promotional spending, which shot up to $333.8 million for the interactive segment. But PENN remains confident of ESPN BET’s future. Management expects promotional expenses to normalize while betting activity continues expanding.
Additionally, the ESPN alliance provides PENN invaluable access to ESPN’s media ecosystem and cross-promotion opportunities. Management believes ESPN BET can efficiently grow its customer base and market share over time via this organic cross-sell approach. Further, PENN’s online sportsbook will likely launch in the key New York market later this year.
New York Market Access
Earlier this week, PENN announced an agreement with Wynn Interactive Holdings to acquire its mobile sports wagering licenses in New York for $25 million. This paves the way for the launch of ESPN BET in the state in 2024. New York is the largest regulated online sports betting jurisdiction in North America. Hence, entering this market significantly boosts PENN’s interstate expansion plans for ESPN BET across the United States.
Debt & Cash Flows
PENN maintained a decent liquidity position as of December 31st, 2023, with total liquidity touching $2.1 billion, including $1.1 billion of cash and other cash equivalents. Its net debt rose to $1.6 billion from $1.1 billion last year. For Q4, PENN generated cash flow from operations of $235.4 million and incurred $152.2 million in capital expenditures.
PENN Entertainment Stock Performance
Following the release of its Q4 results, PENN Entertainment stock was down 13.84% to $19.39, a $3.11 price drop as of February 15th, 2024 close. The stock is under pressure from the year-long loss. PENN stock’s performance in the past year has been lagging the market.
The latest performance is related to a mixed performance in the Q4. The retail unit had strong results. However, the interactive division experienced further losses. Investors are skeptical about the growth prospects of its online business in the face of intensified competition. PENN will have to reassure the investors of the prospects of its online betting business.
Is PENN Stock Worth Buying in 2024?
Despite the recent drop in value, analysts still view PENN as a bargain stock. Its core offline business unit is still strong, accounting for most of its cash flow. PENN still has a chance to achieve profitability from its online gambling business if it manages to reduce costs. Improving efficiency could allow the company to turn in a positive net income next year, especially with the entry into the New York market and the ESPN partnership.
Primarily, the risk lies in the incompetent execution of the business model. Despite this, PENN should trade at an attractive valuation considering the near-term discount to long-term growth prospects. Investors with a high-risk tolerance who make a modest investment in PENN shares could see appreciation in the next few years when its digital platform becomes profitable.
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