PENN Entertainment Inc. delivered mixed results from its retail and online sports betting sites in its fourth-quarter earnings report released on Thursday.
On the plus side, the legal sports betting operator posted Q4 revenue of $1.57 billion, a marginal 0.8% gain over the same period in 2021, but still enough to beat street estimates by $20 million.
Meanwhile, PENN reported FY22 revenues of $6.4 billion with an adjusted EBITDAR of $1.94 billion.
"As you can see from our earnings release and corresponding investor presentation, we wrapped up another solid year despite ongoing macroeconomic headwinds throughout the year," said PENN Entertainment CEO Jay Snowden during the earnings call.
The company generated $468.3 million in adjusted EBITDAR in the fourth quarter — a minor year-over-year decline of 2.5% from Q4 2021 — which the company largely attributed to the impact of "severe weather in certain parts of the country in December."
Similarly, the company reported a net income of only $21 million in the final three months of 2022, a disappointing 54% YoY drop from the final quarter of 2021.
As a result, PENN registered a profit of only 13 cents per share, well short of the consensus estimate of 33 cents per share provided by analysts surveyed by Zacks Investment Research.
PENN currently operates 31 retail sportsbooks across 14 states, with a market share of approximately 18%. It recently launched in Ohio and reported its best-ever launch when the state went live at the beginning of January 2023.
"This was the most successful launch for Barstool Sports and one Ohio property had its biggest volume ever," Todd George, PENN Executive Vice-President of Operations. "Younger customers are having a great impact and all four Ohio properties exceeded expectations.”
Penn Interactive posts first-ever profitable quarter driven
The best news PENN had to report was the outstanding performance of Penn Interactive — the division that houses its online casino and sports betting operations, under the Barstool Sportsbook brand in the U.S. and theScore Bet in Canada.
For the first time in company history, PENN saw its digital unit turn in a profitable quarter. Penn Interactive posted Q4 EBITDA of $5.2 million despite a massive $10 million payout to Jim "Mattress Mack" McIngvale for his winning World Series wagers on the Houston Astros.
"Importantly, we also achieved profitability in our Interactive segment notwithstanding an unfavorable sports betting outcome in the World Series," said Snowden in remarks accompanying Thursday's earnings presentation.
Digital revenue came in at $208 million in the fourth quarter, an impressive 32% year-over-year gain over the $157.6 million registered in Q4 2021. Nevertheless, for 2022 as a whole, PENN reported digital division losses of $74.9 million — more than double the $35.4 million shortfall in 2021.
Ontario's theScore Bet is a key driver of online profitability
Snowden also attributed the company's first-ever profitable quarter to the digital division's strong performance in Ontario, where theScore Bet's iGaming and sportsbook continue to exceed expectations in Canada's largest (and only) regulated sports betting market.
"Ontario is now our top market in North America for both sports betting and iCasino, with strong growth and positive trends through our first NFL season, including record growth and net revenues in December," said Snowden. We were able to maintain our market share in Ontario this quarter despite a 50% increase in the number of operators in the province."
"The impressive Ontario numbers were partly due to PENN's completion of the initial integration of the Barstool Sportsbook into theScore media app in October, highlighting the benefits of our owned media strategy."
Snowden also forecast that digital operations will become increasingly profitable during 2023, in part driven by the migration of PENN's proprietary tech platform to a single stack at Barstool Sportsbook — a process it expects to complete by the end of the summer.
"We’re anticipating a roughly $100 million swing and profitability in our interactive segment in 2023 as we are just beginning to scratch the surface of what we believe will be a tremendous long-term growth opportunity for us," said Snowden.
PENN offers guidance for 2023
PENN also provided full-year revenue guidance for 2023. The operator expects revenue to come within a range of $6.15 billion to $6.58 billion, while adjusted EBITDAR is forecast at between $1.875 billion and $2.0 billion.
"This outlook reflects our momentum in both our Retail and Interactive segments and the potential for further economic headwinds as well as increased supply in a few of our markets," said Snowden.
The CEO also noted that the company's Q4 earnings statement does not include the full results from Barstool Sports, in which PENN will complete its acquisition of the popular sportsbook brand on February 17.
"Barstool achieved record revenue in 2022 while investing in and expanding into new verticals, including coverage of live sporting events such as the Barstool Invitational college basketball tournament on Nov. 11 and the Arizona Bowl on Dec. 30," said Snowden. "The combination of Barstool’s vast, loyal audience with theScore’s fully integrated media and betting platform will provide us with compelling competitive advantages and organic cross-selling opportunities."
