Penn National Gaming (PENN +2.15%) is set to report first-quarter earnings on May 6. The company, which operates gaming properties across the U.S. and the popular Barstool Sportsbook online gaming app, hopes to bounce back after the disruption to its business from COVID-19.
Nearly 150 million Americans have received at least one dose of a vaccine against the coronavirus. That's giving people more confidence to visit places like casinos. Still, the bigger story for Penn National Gaming shareholders is the progress of its sports-betting business. The segment is growing rapidly and has more potential in the long run than the company's traditional casinos. That's why online gaming handle is going to be the key metric you want to follow when Penn reports earnings.
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Sports betting is just getting started
The handle is the sum of total wagers and the base from which the company collects a percentage as revenue. You can imagine that if customers place a total of $100 million in wagers, some will win and some will lose, but the casino operator sets the odds in such a way that it wins more than it loses in the long run.
The Barstool Sportsbook app is now live in three states. It started in Pennsylvania before expanding to Michigan in January and Illinois in March. Furthermore, Penn plans to offer similar services in more states throughout 2021 (competitor DraftKings was live in 10 states as of Nov. 2020). Online sports betting is still in its infancy as the Professional and Amateur Sports Protection Act (PASPA) was overturned just three years ago, which paved the way for states to establish this market.
In the first four months since launching in Pennsylvania, the Barstool Sportsbook app generated $219.1 million in handle. And the launch in Michigan showed even greater promise as handle over the opening weekend was 68% higher -- that's despite the fact Michigan has a 20% smaller population.
Here's what CEO Jay Snowden had to say in the fourth-quarter earnings call regarding Penn's expansion plans for sports betting:
We are just beginning to scale, but we are excited to see the early benefits from being live in our second state. Our next launch state will be Illinois, where we plan to go live prior to March Madness pending regulatory approval, of course. And from there, we'll continue to roll out in new states every three to five weeks or so until we're operational in 10 or more states by the end of 2021.
What this could mean for investors
Analysts on Wall Street expect Penn to report revenue of $1.14 billion and earnings per share (EPS) of $0.29 in the first quarter. At those levels, revenue would be up 2% year over year, while EPS would turn positive after the company reported a $5.26 loss in the prior-year period.
In the last six months, the stock is up over 70%. With uncertainty around how the business will recover as an increasing number of Americans are vaccinated, investors should closely follow management's updates on Penn's rollout of the Barstool Sportsbook app across new markes and the pace at which customers return to casinos.
