04 Nov: Penn and Bally rely on more than just one bite

Penn National, Bally Corporation Q3s

Nov 4

Welcome to the second newsletter of today. In this edition we look at Penn National Gaming’s mixed quarter: stock was down more than 9% after QoQ revenue and margin drops but app roll outs in five new states and tech improvements pushed up MAUs. Bally Corporation meanwhile also released its first results since the Gamesys acquisition on October 1 and with new CEO Lee Fenton at the helm.

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Penn National Gaming Q3s

The top line

Revenues of $1.5bn, up $382.1m YoY, net income of $86.1m vs. $141.2m, net income margin 5.7% vs. 12.5% YoY
Adj. EBITDA up $20.7m to $364.3m YoY. Adjusted EBITDAR up $27.7m to $480.3m YoY. Adj. EBITDAR margins of 31.8% vs. 40.1% YoY caused by Hurricane Ida and Delta variant outbreaks
Barstool Sportsbook now live in 10 states, ‘Parlay +’ and ‘Shareable betslip” app features increased MAUs by 6x and by 100k weekly bets.

Province rules: Ontario will be the focus of much of Penn National’s attention when the province launches in early 2022, “mid-Q1 being the most likely timeline”, said Penn CEO Jay Snowden. The group will launch with theScore’s app there and will launch “aggressively” with the “leading digital sports media brand in Canada.”

“One of the things that will benefit us is that there are advertising restrictions in Ontario,” added Snowden, “you can advertise your brand but not huge discounts or big promotions, we welcome that as it will cater to our loyal customers.”

Just one bite: Snowden once again emphasized Penn’s marketing strategy that doesn’t see the group carry out huge and costly media campaigns and enables it to enjoy CPAs of “under $100”. He talked up Barstool’s ‘One bite pizza’ social media campaign, “great to build brand and top of funnel” and the Barstool retail sportsbooks that can serve “as (retail) sportsbooks, make for a great digital experience and introduce new people to the brand in high density locations.”

Vertical focus: With Caesars and FanDuel aiming to be profitable by 2023, Snowden said the “acquisition of the Score” will lead to major investments and tech projects that will be resources and finances-heavy in 2022, but the group’s losses next year will not “be into the hundreds of millions” either, he said.

The group has pencilled in $20m losses in Q421 and that will work as rough calculations for 2022 revenues. The figures “will depend on the Ontario launch as we’re expecting major revenue generation there, 2023 will be hockey stick growth. In 2022 we are going for vertical tech stack integration and we’re very happy to do that.”

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Bally Corporation Q3s

The top line

Revenues up 169.9% YoY to $314.8m and adjusted EBITDA of $78m, up 105% YoY.
Retail gaming revenues at $301.6m and Gamesys revenue at $278.6m.
Gross debt as of Oct 1 at $3.445bn.

Running late: Barely a month into his new job, CEO Lee Fenton who arrived with the completion of the Gamesys transaction made his quarterly earnings debut and put the case for why being late to market in the US market might be no bad thing.

“The winners are not decided in the first few years,” said Fenton. “It can take 10 years.”

Inferiority complex: With Bally to launch a BallyBet 2.0 app in the first half of next year and an icasino operation in New Jersey, he suggested the current sports-betting offering was “not the product we want to put in front of our customers”. “We want to keep our powder dry to push the 2.0 app when it is ready,” Fenton added.

“We don’t need to be first to market with an inferior product,” Fenton added. “We will launch when the product is right. Our analytics and lifecycle management will be important and will also be applied to our retail casinos.”

Boiling it down: Fenton admitted the Bally story up until now has been “a little complex”. “It is our job to simplify the story for investors and give clarity on the numbers.” The moving parts of the Gamesys operation were laid out for analysts with some detail on the UK - where Gamesys is bucking the trend and still seeing growth - to Asia (also up) and international where the business was down 25% due to issues in the Netherlands and Germany.

Get your priorities right: Making the most of omni-channel is among the focuses for Bally as is its existing North American interactive operations. Fenton suggested the company would be investing circa 20% of its free cash flow of ~$400m this year in digital initiatives but suggested this might increase depending on the results. “If the ROI is there, we will spend more.”