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Penn Entertainment's stock took an early morning tumble Thursday (May 2) after the company reported that it had missed its first-quarter earnings estimates and cited the early underperformance of ESPN BET as one of the biggest factors in doing so.
The company’s stock fell as much as 15 percent during the day before rebounding to finish about 9 percent down at closing, at an even $15 a share on the Nasdaq exchange.
Penn reported a net loss of $141.9m on total revenue of just over $1.6bn, with the interactive division reporting a $196m loss on revenue of $207m in the first full quarter of Penn using the ESPN BET brand for its online sportsbook operations.
“Admittedly, we have not been as tight and accurate with our financial forecasting in the early days of ESPN BET, which is not representative of our long-term track record or internal expectations at Penn,” CEO Jay Snowden told analysts on the company’s quarterly earnings call.
“You should expect that we are currently operationalizing our digital business at this stage with the same energy and focus as you have witnessed from us on the land-based side of the business for a long time.”
Snowden said that the company is in the process of “doing something that has never been done before in our space” by launching a new brand in 17 states simultaneously, and continues to collect data that can be used to improve the product.
“It is inherently more difficult, as most of you know, to forecast the digital business because of the number of variables, some of which like hold are oftentimes beyond our control,” Snowden said. “Nevertheless, we take pride in being best-in-class operators at Penn, and that is no different in the digital parts of our business.”
Snowden highlighted several reasons for optimism, including more than 1m first-time deposits in the brand’s first two months of operation without having to over-deliver on promotional offers, and favorable ratings for the ESPN BET app in the iOS app store.
He said the company still feels confident about meeting market-share scenarios of between 10 and 20 percent of the total U.S. online market by 2027. Snowden also said that going forward, the company is looking to improve its parlay offerings in hopes of driving a higher hold rate.
The company reported a 4.4 percent hold for sports betting in the first quarter, and cited increasing spend per user through product improvements ahead of the upcoming NFL season as key to improving the brand’s performance.
For one, he said that the ESPN brand has helped to grow the total addressable market by attracting new players, and that the company expects engagement from those players to improve as they become more comfortable with the application and more experienced in sports betting.
However, he said the company is also still playing catch-up with market leaders when it comes to features that have been popular with players and profitable for competitors.
“We are also seeing that this new casual segment is much more likely to engage with parlay bets, which bodes well for us as we expand our offerings,” Snowden said.
“Number two, we are not yet generating our fair share of wallet with experienced and VIP bettors commensurate with our weekly active user share, by virtue of our parlay, same-game parlay, player prop, and live betting features trailing the market.”
Snowden added that Penn was “at a different stage in the cycle than others in online sports betting and and iGaming given the timing of our ESPN BET launch.”
“We hold ourselves to a very high standard and are committed to getting this forecasting tighter and more accurate as we move forward as we now have six months of ESPN BET data and results to reference and model off of.”
Penn launched ESPN BET in November 2023 after reaching a deal earlier in the year with the Disney-owned sports broadcasting giant to rebrand the company’s sportsbook. In the process, the company parted ways with previous partner Barstool Sportsbook, divesting its ownership in the online sports brand.
