• Penn’s shares suffer as online guidance gets more negative.

• DraftKings’ scale helps it post its customary beat and raise.

• VICI’s Pitoniak on the equity party to which REITs were never invited.

• Rush Street Interactive’s shares get a double-digit fillip.

What if I'm down? What if I'm out?

Penn’s negative guidance

Free falling: Penn Entertainment’s shares dropped by over 17% in early trading before recovering some ground to finish the day off by nearly 9%, after the company lowered guidance across the business and increased estimated ESPN Bet losses by $100m.

• The new estimates came on the Q1 earnings call. B&M adj. EBITDA is now predicted to come in at $1.02-$1.07bn, a $25m cut at midpoint, while interactive EBITDA will come in at $475m-$525m.

• Deutsche Bank suggested the B&M revisions might have “left some uncomfortable.”

• The analysts said the lower online guidance was partly down to lower near-term market share assumptions and the “ambiguities of forecasting the business at this stage.”

Missing in action: The guidance came after what Deutsche Bank suggested was a “sound” Q1, albeit one hit by weather-related issues in B&M gaming and hold issues with ESPN Bet, which led to group Q1 revenues falling 4% to $1.61bn while adj. EBITDA dropped 46% to $236m. 

• Online losses ballooned to $196m for the quarter on revenues of $208m, which was $30m shy of estimates.

• Penn blamed the earnings miss on poor hold and lower-than-forecast spend per user.

Potholes: CEO Jay Snowden admitted Penn had not been as “tight and accurate” with its forecast for ESPN Bet as it had hoped and added that no “nascent” online strategy came without “bumps in the road.”

• But he added that by launching ESPN Bet in 17 states simultaneously, Penn was “doing something that has never been done in our space.” 

• “We are gathering real-time learnings and experiences so we can fine tune and improve our assumptions and inputs as we go,” he said. 

No pressure: One specific improvement will come with the hiring of new CFO Aaron LaBerge, who joins from ESPN itself and who Snowden identified as bringing an “immediate accelerant turbocharge in everything we are working on with ESPN.”

• Saying that the “bottom line is ESPN Bet will be best-in-class,” Snowden reiterated Penn’s ambition for the offering to reach a podium position. 

• “Please keep in mind that Disney and ESPN did not agree to an alliance with Penn to be no. 4 or no. 5 in the market.” 

Bonus balls: Likely to boost the numbers, at least in terms of revenues, will be the imminent launch into the New York OSB market, which will happen before the start of the next NFL season. But when asked whether this would lead to a further increase in promo spend, Snowden played down the potential of a big spike.

• “We're definitely thinking about our launch in New York very differently than all of the state launches to date with ESPN Bet,” he said.

• “Simply because the tax rate makes it very challenging to do anything real aggressive there.”

The song remains the same: Macquarie analysts suggested the same question remains unanswered post-earnings over the chances of ESPN Bet succeeding and argued there are now concerns over the average revenue per user.

• “We have seen several companies see business inflection in Q4 or Q1, including DraftKings, Rush Street, FanDuel and others,” they said.

• “But many remain unprofitable, which is the fear for Penn skeptics.”

Feel the burn: Macquarie noted that Penn’s losses are now on a scale with DraftKings’ largest loss during its customer acquisition phase of $314m but slightly better than Caesars’ mammoth peak of a negative $554m.

Share

120 Days To Comply

Frictionless affordability checks are required from 30 August 2024. No time to waste – email michael@dotrust.co.uk and join other leading operators including Rank and Lottoland on the leading dedicated platform for financial assessment.

DraftKings’ shining light

And the beat goes on: DraftKings released its Q1 numbers AMC showing revenues up 53% to $1.18bn, while adj. EBITDA moved from a $222m loss in the prior-year period to a profit of $22.4m. Truist said the earnings “provided a bright spot in an otherwise dim Q1 earnings season so far.”

• Same old, same old: As is now customary, the company also raised its guidance, now predicting an adj. EBITDA profit at midpoint of $500m while forecast revenues will now come in at $4.9bn at midpoint.

• “We don’t believe the results will come as a surprise, given the history,” said the team at Deutsche Bank. 

Everything flows: New CFO Alan Ellingson said in the earnings release that the company expects adj. EBITDA flow-through to exceed 50% for FY24. The updated guidance doesn’t include recent acquisition Jackpocket, which will be incorporated once the deal is concluded.

It’s a gamble, bud: The DB analysts noted the upgrades came despite the hold challenges in Q1 before adding a comment about the debate over this issue. “The hold dynamics have been tiring,” they suggested. “It has been a chronic discussion across all of gaming and all geographies with gaming. It is gambling after all.”

• JMP said DraftKings’ scale, including a large product offering smoothing out margins during the Super Bowl, had anyway protected it from downside and unfavorable results, “unlike its competitors.”

iCasino of the beholder: The team also pointed to an expected increase in iCasino margins. “Development of technology and more efficient data are supporting higher expected gaming margins, leading to high flow-through improvements to the business model,” they added. 

Diary note: DraftKings will conduct a call with analysts later today. See Monday’s E+M for more.

+More

Games Global has announced its IPO timetable, with a series of investor meetings leading to the price of the sale of 14.5m shares owned by Zinnia.

888 has priced its £400m of senior secured notes at 10% and has entered into a multi-currency £50m revolving credit facility that matures Dec25. The proceeds will be used to repay existing debt and will reduce the total by £18m.

Read across

Word up: In the debut edition of the Token Word, an Isle on Man-based crypto assets business called Soteria has seen its license to operate suspended by the island’s financial regulator due to shared director ties with similarly IoM-based gaming operator King Gaming, which was the subject of a series of arrests late last week.

Rules of the game: In Compliance+More, the UK Gambling Commission finally set out the new rules for, among other things, its vulnerability checks and confirmed a pilot for the financial risk checks. Coverage is here and here.

What we’re reading

A commercial break: The number of gambling ads on TV in 2023 fell by 21% compared to the year previous, according to statistics provided by Nielsen for the AGA. Via Bloomberg.

• Chief Operating Officer – Prague 

• Senior GoLang Developer – Malta 

• Head of Marketing – iGaming – Abu Dhabi 

VICI call recall

They were careless people, Tom and Daisy: Ed Pitoniak, CEO at the gaming REIT, started off the call with analysts with a critique of Gatsby-esque US equity trends. “A fair part of the S&P 500 packed into a house and held a magnificent party,” he said. “But to be clear, American REITs were not invited to this party.”

• Warming to his theme, Pitoniak said the party is now “running out of steam" but without ambulances being called and with no partygoers “fleeing naked down the street out of their minds like Will Ferrell in Old School.”

• “Amidst all this noise, the general investment marketplace is having a hard time focusing on the income and capital appreciation dynamics of good REITs,” he added. 

Boats against the current: In response, Pitoniak said VICI just keeps on “doing what we do”, which includes expanding the scope and TAM for the company’s investments beyond just the gaming sphere. 

• However, its most recent deal announced this week is the part funding of a $1bn refit and refurb at the Apollo-owned Venetian.

• The company is also waiting on regulatory approvals in order to exercise the call option on acquiring the Caesars-owned Harrah's Hoosier Park and Horseshoe Indianapolis assets. 

Close to home: In Las Vegas, COO John Payne said the company was looking at expanding its partner footprint in the Locals and Downtown sectors. “Those are great segments of the business that we simply don’t have real estate or partners yet along the way,” he added.

Will you be at SBC Summit North America (May 7-9)? Visit GeoComply and explore how we help protect the business of leading operators globally, with geolocation, fraud prevention, and streamlined licensing. Find us at booth A120!

The shares week

Rush of blood: Rush Street Interactive soared by nearly 18% on Thursday after posting positive earnings AMC Wednesday, leaving the shares up over 26% for the week so far. The team at JMP said they “get the sense Rush Street is feeling positive around underlying fundamentals.”

• This includes the recent launch of Delaware, which the analysts estimate improved revenue guidance by $7m out of the $35m. 

• Meanwhile, Macquarie noted RSI’s three largest iCasino states of Michigan, New Jersey and Pennsylvania each displayed their highest revenue growth in the last two years.

• The team also pointed out that LatAm “continues to be a solid success story” for RSI.

🚀 Rush Street soars post-earnings

Analyst takes – Bally’s

Whatever you want: The debt team at CBRE suggested the news on the trio of major developments on the company’s slate at present, including the Tropicana, Chicago and New York, was very much a “status quo” situation. With Chicago, the team noted that details are still to be announced over the financing plan.

• For the Tropicana site, delays are likely to play a part in the thinking as the company contemplates the site gaining in value the closer the A’s get to building their MLB stadium.

• “We agree with management that the attractiveness of the site, to Bally’s or a buyer, increases closer to the A's official arrival to Las Vegas expected in 2028.”

• The team also noted the temporary Chicago property was “ramping nicely”, with the operating improvements at the property helping to grow visitation and gaming metrics each month this year.

Calendar

• May 6: Earnings+More Capital Markets Forum, NYSE

• May 7: GeoComply Challenger event, NYC, Red Rock

• May 7-9: SBC North America Summit

• May 8: Genius, Super Group, Full House, LNW, Golden Accel

• May 9: Flutter Entertainment, Bragg Gaming, AGS

Venture capital firm Yolo Investments manages in excess of €500m in capital across 100 exciting fintech, gaming and blockchain companies. The Yolo Investments' Gaming fund, regulated by the Guernsey Financial Services Commission, has taken positions in fast-growth suppliers and operators, including Dabble and Enteractive. Yolo Investments (yolo.io) wants to hear from readers of this newsletter. Get in touch with your pitch, or for a chat about innovative products which can plug into our investment ecosystem.

An +More Media publication. 

For sponsorship inquiries email scott@andmore.media.