There is more value to be found elsewhere within the gaming segment than in the Penn Entertainment stock, Steven Wieczynski from Stifel said.
That is despite the upside in the stock compared to his $19 target and the growth seen after an investor recently called Penn out in an open letter to the board for the billions spent on sports betting investments.
The report comes after Stifel hosted Senior VP of Finance and Treasurer Mike Nieves and Investor Relations Manager Aaron Aita for investor meetings at its Cross Sector Insight Conference.
“As such, while the activist letter appeared to drive a nice short squeeze, it’s hard to see what draws new investors to the story for now,” Wieczynski said. “We have been huge fans of PENN for many years and believe this is one of the most respected management teams in gaming. However, at this point, we see more value elsewhere within gaming.”
Penn meeting similar to last year
Wieczynski noted that this year’s meetings with Penn felt similar to last year’s. The company’s retail casino business remains mostly stable while unrated and low-income play remains soft.
While investors are concerned about low-income play worsening or seeing a change in upper-tier play, management noted the best economic indicators for regional gaming are unemployment and then home prices. Those both suggest resilience in visitation and spending right now, management said.
Despite those positives, there remains concern over the direction of interactive as there was last year, Wieczynski said.
Bullish on new CTO
Incoming chief technology officer Aaron LaBerge is “uniquely positioned to accelerate integrations with ESPN assets” as he has prior experience with Disney platforms, management explained.
He has worked directly with its fantasy sports product, which has a database of around 12 million. Personalization features with that app, like links to prop bets based on a bettor’s fantasy lineup, will be incorporated before the end of the year, according to management.
Wieczynski also noted there will be more link-outs to ESPN Bet in a variety of content as NFL betting approaches. Penn will learn more about customers with both their gambling and media app accounts linked, management said.
Penn stock needs new players monetized
Management explained that the higher than expected losses are because of better than expected user acquisition. While ESPN has been “incredibly effective” at top-of-funnel acquisition, the next step to profitability “hinges on PENN’s ability to monetize” those users, Wieczynski said.
“Management forecasted improving hold and handle per user into 2024/25 football season, primarily reflecting improvements to product: [user experience], player props markets, parlay functionality, new features (e.g. visualization tools),” Wieczynski said. “Bet size and frequency is also expected to increase naturally over time as casual users brought in from the ESPN side become more familiar with sports betting.”
ESPN Bet will simultaneously grow the sports betting total addressable market through that improved integration between media and betting apps, Penn said. ESPN noted its digital, YouTube and social channels reached 184.9 million users in April, which is two-thirds of the US adult population.
