The stock of Penn Entertainment (NASDAQ: PENN) surged on Monday, November 20, 2023, driven by the excitement surrounding the launch of the ESPN Bet mobile sports wagering application. The company saw a 7.33% increase in its stock price and higher-than-average trading volume, following an upgrade and positive price target revision by Bank of America analyst Shaun Kelley.
ESPN Bet, launched by regional casino operator Penn Entertainment in 17 states on November 15, has seen strong initial download activity, ranking as the top or second free app on the iOS store since its launch. Kelly’s note to clients also mentioned the app’s impressive 865,000 cumulative downloads and a 4.8 app store rating, despite not having data from NFL Sunday.
The partnership between ESPN and Penn Entertainment, which saw the latter pay $1.5 billion to ESPN’s parent company Walt Disney over 10 years, has been beneficial for both parties. Penn Entertainment is also granting ESPN $500 million in warrants, providing the network with conditional ownership of approximately 31.8 million shares in the casino company over a 10-year period.
Despite initially not being ESPN’s top choice, Penn Entertainment’s financial offer and ESPN’s desire to be directly involved in sports wagering sealed the deal. The collaboration is showing signs of potential success, with strong initial download and app activity, disciplined promotional offers, and stable Q3 earnings.
Since acquiring a 36% stake in Barstool Sports in January 2020, Penn has been viewed as an online gaming company. However, regional casinos remain the primary drivers of the company’s earnings and revenue, which could be overlooked at a time when the company is less exposed to competitive pressures in certain markets.
Bank of America’s Kelley also noted that Penn is cutting costs and has seen limited margin disappointment following the impact of COVID-19, further contributing to the positive outlook for the company’s stock.