ESPN Bet First Week Sees Investors Take Cautious Approach

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With the first week of ESPN Bet in the books, investors are still waiting to see more before taking a hard stance on Penn Entertainment’s latest endeavor.

$PENN jumped as high as $24.77 a share on Thursday, a 2% increase from where it closed after launching ESPN Bet in 17 states late Tuesday afternoon. It was back down slightly to $24.48 on Friday, though other gaming stocks like Caesars and MGM experienced similar declines.

“Stock movement is tough to tell because the market has had some really big up days and I think PENN benefitted from that earlier in the week. At times when DraftKings trades up, some of the other names trade up in sympathy,” said Chad Beynon, an analyst at Macquarie, nodding to a 7% bump to DraftKings stock after it raised profit goals the same day that ESPN Bet launched.

Can Penn execute on larger promises?

A $200 deposit match bonus and network-branded commercials answer some initial questions about how Penn will approach its $2 billion investment. Investors, however, want to see if it can make good on some of its larger selling points, Beynon said.

“With the stock at $25, in our view, there’s a lot more upside if they can just deliver on ESPN Bet. Because there’s not a lot of believers right now,“ Beynon said. “It’s kind of like, let’s wait and see, so no one’s buying in quite yet, but it’s been a fair launch so far.”

Fantasy football integration in ‘coming weeks’?

Penn CEO Jay Snowden has been vocal about new concepts the partnership allows, such as integrating betting content into more ESPN verticals such as boosted bets tailored to players on an ESPN Fantasy Football user’s team.

During a recent ESPN conference, Snowden said the fantasy concept could be realized “in the coming weeks and months.”

“No one’s gotten the social aspect of sharing bets right yet, and then the fantasy integration, from a content standpoint, we’re waiting to see still if there’s a big change in tone from the network in how they’re communicating sports betting and the product,” Beynon said.

A ‘good sign’ that ESPN Bet works

Jordan Bender, an analyst with Citizens JMP Securities, said it is a good sign that Penn transitioned in all 17 possible states at once, seemingly without a hitch.

“No one else has done that. The app looks to run smoothly. It’s not clunky. Nothing differentiates the user experience in a bad way,” Bender said. “There are other apps still obviously superior product-wise, but it seems to be running better than Barstool and that’s a good sign.”

Switching from third-party to in-house

Penn could do that because it held licenses from Barstool Sportsbook, which it abandoned this summer after failing to capture double-digit market share in the U.S. The app struggled with underperformance, which Penn had attributed to using third-party technology.

Powering ESPN BET with in-house technology purchased from theScore is part of Penn’s plan to better retain customers. On Thursday, reports of difficulty logging into the app during its first NFL game sparked some reaction on social media, though it does not appear those lasted long.

A spokesperson with Penn said the app was up and running all night.

ESPN Bet attracts users, but will they stay?

Of course, that has not stopped people from flocking to the app to get free money, including former Barstool users who are also eligible for the promo.

Citizens JMP Securities estimates ESPN Bet was the most-downloaded sports betting app ever in a two-span with 459,000 downloads from Wednesday to Thursday. Most sportsbooks launch state by state, however, not in 17 at once.

The jury is still out on whether or not ESPN Bet can get people to stay once they get their bonus.

“We saw similar results with Fanatics and PointsBet to start the NFL season before they pulled back on spend, while download market share went from 14% to 3%,” Bender said. “It doesn’t mean people are gonna stay once they get their money. How these downloads change over time will show us the level of investment Penn is making to acquire new players.”