ESPN Bet Underperforms In Q1, Penn Stock Tumbles Post Earnings

Written By

Updated on


ESPN Bet underperformed during its first full quarter on the app store, contributing to a worse Q1 than expected for Penn Entertainment.

Despite an encouraging retail performance, ESPN Bet and the long-term buy-in for investors dominated Penn’s quarterly earnings call Thursday morning. CEO Jay Snowden unveiled a priority roadmap for the nascent sports betting app, which includes integrating it into ESPN’s fantasy football platform by football season and generating more parlays in the meantime.

Penn stock near COVID lows

But for Wall Street, that potential was not enough to overshadow the sports betting app’s lower-than-expected financials, paltry hold or user base trends.

Within minutes of the call, PENN stock fell to $13.69 a share, its lowest level since COVID-19 forced almost everything including casinos to shut down in March 2020.

The stock closed Thursday at $15.00 a share, down 8.8% from Wednesday‘s close on more than four times its average volume of 5.4 million.

Penn misses quarterly earnings

For Q1, Penn posted $1.6 billion in revenue, 2% shy of consensus Wall Street estimates and a 4% decline year-over-year. Adjusted EBITDAR for the quarter was $256 million of EBITDAR, 8% short of estimates and down 46% year-over-year.

Online betting produced $208 million in revenue, missing estimates by 12%. The segment posted negative adjusted EBITDAR of $196 million, 9% worse than estimates and 15% worse than Penn had previously guided.

Regional retail sectors were largely in line with expectations despite poor weather conditions early in the quarter, while eight properties achieved record EBITDAR.

Penn saw record online sports betting handle, which was up 96% year-over-year. Gross gaming revenue was also up 51%, though down about 33% from the previous quarter.

Snowden: Q1 not representative of ESPN Bet future

Those results came on the back of low 4.4% sports betting hold, due to an especially bad string of sports outcomes for sportsbooks in Q1. Caesars executives cited a similar issue in their earnings call earlier this week, though it managed a 6.7% hold for the quarter.

Snowden said ESPN Bet would have seen “very close to” $50 million more in net revenue had it held in its target range of 7% to 8%. ESPN Bet did much better in April, holding roughly 8.5%, a level Snowden said investors should anticipate going forward.

Barry Jones of Truist described the hold performance as “something we think the street will look past.”

Promotional spend trails off

Promos as a percent of ESPN Bet’s sports betting handle dropped to 4.8% in Q1, a drastic decline from 16.7% in Q4 when it launched in 18 states at once. Much had been made over the role promos may have played in ESPN’s handle total during quarter, a time when most competitors were only offering their base-level offers.

ESPN Bet will launch in New York in Q3 after acquiring WynnBet’s license earlier this year.

That could lead to an uptick in promotions, Snowden warned, with the caveat that New York’s 51% tax rate “makes it very, very challenging to do anything real aggressive there.” Going forward, investors should expect the current level of promotions to continue.

Users spend less on ESPN Bet

ESPN Bet had 685,000 monthly active users in Q1, down 11% from Q4, but up 152% from the figure held by Barstool Sportsbook in Q1 2023.

Data courtesy of Sensor Tower shows ESPN Bet ranked third among nine competitors in weekly active users every week during the quarter. The issue for Penn is handle per user was lower than expected, however, which is notable considering it touted the ESPN partnership as a tool to rein in casual bettors.

“One of the things that we’re seeing because we have had a lower handle per user as the product continues to ramp as we’re also seeing a slightly lower deposit per user than what we expected as well. So deposits are coming through, users are engaged, but the average bet size has been lower,” Snowden said. “And as we talk to our users through feedback and research, it’s a lot about parlay offerings and same game parlay, which obviously is the top priority for us between now and September.”

Penn indicated an especially high rate of parlays and unique bettors from North Carolina, which launched sports betting in March.

Parlays a top priority in phase 2

Snowden said getting ESPN Bet off the ground has taken up much of the company’s focus over the last year and a half, but between now and football season it will address those scaling issues.

He described parlays and same-game parlays has the company’s top priority going forward.

“I think that you’re going to see us probably over-index on parlays when we have a better offering available,” Snowden said.

Full ESPN integration by NFL season

The company unveiled a roadmap for ESPN Bet product changes in the coming months, including a standalone iGaming app, improved home page improvements, expanded same game parlay offerings, a referral program and early win payouts.

By the start of the upcoming NFL season, Penn expects to have most of the following integrations with ESPN accomplished:

Former Disney exec to ‘turbocharge’ ESPN Bet

It was recently announced that former Disney and ESPN Chief Technology Officer Aaron LaBerge, will take over Penn’s interactive division in July.

Snowden provided some more insight into his role to end the call.

“He will act as an immediate accelerant, turbocharging everything we are working on with ESPN, and his expertise in sports betting, fantasy and media will be truly complementary to this extremely talented executive team I am already surrounded by at PENN,” Snowden said.