Please ensure Javascript is enabled for purposes of website accessibility

Penn National Gaming Q3 Earnings Preview: Progress on Mobile Sports Book Will Take Center Stage

By Parkev Tatevosian, CFA – Oct 30, 2021 at 9:30AM

Key Points

  • Penn National Gaming acquired sports media company theScore on Aug. 5 for $2 billion to help the mobile gaming efforts.
  • Penn National Gaming expanded to five additional states in Q3.
  • Its stock is down 15.5% in 2021.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The land-based-casino and mobile gaming operator is set to report third-quarter earnings on Nov. 4.

Penn National Gaming (PENN 0.59%) has long operated land-based regional casinos across the U.S. However, in the last few years, it has expanded into interactive gaming, including a mobile sportsbook, and recently made a $2 billion acquisition to help propel growth in the segment. 

The company still generates most of its revenue and profits from land-based casinos. Still, its interactive segment is snowballing and will take center stage when the company reports third-quarter earnings on Nov. 4.

Two people playing on slot machines.

Penn National Gaming stock is down 15.5% year to date. Image source: Getty Images.

Penn National Gaming pushing into $30 billion market 

Interestingly, Penn National Gaming's segment, including its mobile sportsbook and iGaming business, increased revenue to $98 million in its fiscal second quarter ended June 30. That's up from $27 million in the same quarter the year before and $9 million two years ago.

Sales growth might escalate faster considering Penn National Gaming expanded to five additional states for mobile sportsbook during the quarter. The company planned to complete the expansion in time for the popular National Football League season. The additional states will double its footprint from its current total. Still, at just 10 states, there is plenty of potential for the category, and that's what has investors excited.

According to management, the North American mobile sportsbook and iGaming market could be worth $30 billion annually. To accelerate its penetration of the industry, Penn National Gaming acquired theScore for $2 billion in cash and stock. theScore is the most popular sports media company in Canada and the third most popular in the U.S., and the company operates a mobile sportsbook of its own that is live in three states. 

In the best-case scenario, Penn estimates the acquisition could bring an additional $1.5 billion in annual revenue and $525 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). With so much potential in the segment, it's no surprise that the market will be laser-focused on Penn's progress when it reports third-quarter earnings. 

Penn National Gaming stock is tied to mobile gaming efforts

Overall, analysts on Wall Street expect Penn National Gaming to report revenue of $1.5 billion and earnings per share (EPS) of $0.89. If the company hits the revenue estimate, it would be a 33% increase from the same quarter a year ago. The company's land-based casinos are recovering as economies are reopening and people feel more comfortable leaving their homes.

Penn National Gaming's stock is down 15.5% year to date in 2021. Economic reopening, while helpful for its land-based casinos, harms its mobile gaming business. The market would prefer conditions that help the latter. Mobile gaming has a better potential to scale with less capital. Penn does not need to build expensive casinos to grow mobile gaming revenue. For that reason, Penn's stock is likely to respond more to changes in its mobile gaming progress than anything else.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.