Penn Expects To Win Race To Profitability Among US Sportsbooks

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Penn is hoping to flip profitable on its interactive business by the end of the year ahead of its major rivals in the US market, the company said Thursday

The interactive segment, which includes Barstool Sportsbook and theScore Bet, posted an adjusted EBITDA loss of $20.8 million in Q2.

However, Penn CEO Jay Snowden said an inflection point was just around the corner:

“We feel very good about being profitable in the fourth quarter and not just in online casino,” Snowden said. “It’s not going to be a real significant profit, but being profitable in the fourth quarter when the rest of the market isn’t is a big accomplishment.”

Penn is one step ahead

For comparison, Rush Street and Caesars both said this week their digital businesses will not be profitable until the second half of 2023. FanDuel and DraftKings are also targeting 2023 to turn a profit.

That said, Penn’s Interactive losses this year will still reach around $50 million. The company is planning some marketing spend in Q3 around football season, especially in new markets like Ontario and Kansas.

Penn’s results also hinted at the downside of frugal spending on marketing and bonuses. The Barstool Sportsbook currently has just a 2.8% share of US online sports betting GGR, according to estimates from Eilers & Krejcik. That is some way short of initial podium expectations, though Barstool’s share is approximately double that in states where it is live.

Source: State reports

What to expect in Ontario

Elsewhere, Snowden said theScore Bet was doing “as well as we thought” in Ontario sports betting. He said Penn expected to be have double-digit market share in both sports betting and casino.

However, Snowden did not give away specific numbers and warned “the Bet365’s of the world have been at it for a long time” in Canada.

“It’s really more of an education thing in Canada,” Snowden said. “Because a lot of people that have been betting with these gray market operators don’t realize they were gray market. So we want to make sure they understand now that there’s a legal market … and so we’ll spend a little bit of money there heading into football season.”

Vertical integration for Penn

Penn recently migrated theScore Bet onto its own trading platform, meaning the Ontario product is now fully in-house. Barstool Sportsbook is on track to make a similar transition in Q3 next year.

“Post migration, we’ll begin to realize the full benefits of our in-house technology stack,” Snowden said. “That includes meaningful cost synergies ,and improved marketing and promotional capabilities.”

Macquarie analyst Chad Beynon said coming quarters would be “crucial to test the tech” before the US Barstool migration. Macquarie valued the interactive business at $24 a share, and said investors were currently “getting the Online business for free.”

Refresh the name

At the results, Penn also rebranded to Penn Entertainment to reflect its position as an entertainment provider rather than an out-and-out casino operator.

Penn stock is broadly flat since the earnings print at $35 a share.