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Sportsbook Momentum Continues for Penn National Gaming in Q3

By Parkev Tatevosian, CFA – Nov 12, 2021 at 8:00AM

Key Points

  • Penn National Gaming is advancing in a $30 billion total addressable market.
  • Penn National Gaming could be live with sports betting in Canada in early 2022.
  • Online gaming is more lucrative than land-based casinos due to lower recurring expenses.

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Penn National Gaming adds five more markets where it offers its mobile sportsbook.

Penn National Gaming's (PENN 0.29%) business consists mainly of regional land-based casinos spread across the U.S. and an online gaming component. Lately, the online segment, which offers gambling and sports wagering, is getting all the attention

Understandably so. That part of the business is growing much faster than the land-based casinos and has better potential for revenue and profits in the long run. Consider that land-based casinos, especially the regional ones, are constrained by geography. The size of the population limits your customer base to within driving distance for the most part. There is no such constraint with online gambling. A customer from the farthest part of your state can make a bet on your app within a few minutes of getting an impulse. 

Two people playing on slot machines.

Image source: Getty Images.

Penn National Gaming expands mobile sportsbook to five more states

Shareholders will be happy to hear that during the third quarter, Penn added five new states to the mix of jurisdictions in which it offers mobile sports betting. CEO Jay Snowden commented on the expansion in the Q3 earnings announcement: 

In addition to the five new launches of our Barstool mobile sportsbook betting app, all of which occurred before the start of the football season, earlier this week, we launched our mobile sports betting app in Iowa, which expands our footprint to 10 states. Overall, we are benefiting from our increased scale and are driving higher handle and revenue market share across the board while remaining disciplined with our marketing and promotional spend. These results underscore our commitment to our business model, which remains focused on near term profitability rather than aggressive marketing aimed at generating short term increases in handle.

The segment that includes results for its online sportsbook and gambling services increased revenue to $96.5 million in the third quarter, up from $23.7 million in the same quarter last year. In the first three quarters of its fiscal year, revenue in the segment increased to $282.1 million from $71.6 million last year. While Penn is making phenomenal progress on the development, there is a long runway for growth. The company is only live with mobile sports betting in 10 states in the U.S.

Rival DraftKings is already live in 15 states. Penn is lobbying legislatures in California and Florida to legalize the activity. And although New York state has legalized mobile sportsbooks, they are asking for a steep revenue-share agreement, and Penn was not selected by the state for approval.

What's more, on Aug. 5, it acquired theScore, a sports media company that is incredibly popular in Canada, for $2 billion in cash and stock. One of Canada's largest provinces, Ontario, legalized mobile sports betting, and the acquisition could allow Penn an early foothold in the region. The company can potentially start offering sports betting in Ontario in early 2022.

Penn National Gaming is going after a $30 billion market

Overall, mobile sports betting and iGaming are estimated to be a $30 billion total addressable market. Making this particular market more lucrative requires a lower capital expenditure to reach the customer base (compared with building land-based casinos) and the lower recurring spending needed to run an online gaming business.

It's no surprise that investors are paying close attention to Penn National Gaming's progress in developing its mobile product

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.

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