6. PENN Entertainment, Inc. (NASDAQ:PENN)
Greenlight Capital’s Equity Stake: $98.62 Million
Number of Hedge Fund Holders: 30
PENN Entertainment Inc (NASDAQ:PENN) is a consumer cyclical company that provides integrated entertainment, sports content, and casino gaming experiences. It’s one of the companies whose core business came under pressure on reduced consumer purchasing due to high interest rates.
Einhorn invested in PENN Entertainment amid investor scepticism following Penn’s challenging acquisition of Barstool Sports. At the time, he reiterated the potential of sports betting and insisted that if Penn had executed it correctly, it could have significantly boosted the company’s shares.
Nevertheless, it announced a solid second quarter in 2024, achieving an EBITDAR figure of $367 million, which exceeded the average forecasts by 8%. This achievement was fueled by superior-than-anticipated online outcomes, and the physical casino division achieved the anticipated revenue and EBITDAR figures from analysts.
PENN Entertainment Inc (NASDAQ:PENN)’s retail locations achieved strong outcomes in the latest quarter, thanks to an elite group of managers who consistently perform well across a wide range of top-tier properties. The success of ESPN Bet, the online sports betting site, has been a key growth area for PENN Entertainment. Although the site experienced a drop in its portion of the market during the second quarter of 2024, it was able to boost its profit margins in games and maintain its position in the market over the course of each quarter.
Encouraging developments for ESPN Bet include sustained gaming profit margins above 8% in the second quarter of 2024 and an enhanced selection of parlay options. These elements indicate that the platform is advancing in both operational effectiveness and the variety of its services.
PENN Entertainment Inc (NASDAQ:PENN) is investing significantly in its future expansion, with four retail expansion projects in progress. These investments and ongoing enhancements to its digital platforms are paving the way for potential expansion beginning in 2026.
Using the strong reputation of ESPN, ESPN Bet has a great chance to enhance PENN’s standing in the digital sports betting industry. In return, the company should generate significant shareholder value down the line.
As of the end of the second quarter of 2024, 30 hedge funds tracked by Insider Monkey had stakes in PENN Entertainment Inc. (NASDAQ:PENN).
Greenlight Capital stated the following regarding PENN Entertainment, Inc. (NASDAQ:PENN) in its first quarter 2024 investor letter:
“We established a new medium-sized position in PENN Entertainment, Inc. (NASDAQ:PENN) at an average price of $22.69 per share, but, for reasons discussed below, the shares fell to $18.21 by quarter-end. s referenced above, we established a medium-sized position in PENN, an operator of regional casinos. PENN’s current enterprise value is just over $4.3 billion, and based on an 8-12x multiple of free cash flow, we value their land-based casinos between $4.3 billion and $7 billion. PENN also competes in online gaming, particularly sports betting, and we believe the market ascribes a substantial negative value to that effort. To be fair, the online segment has a checkered history. In 2020, PENN acquired a minority stake of Barstool Sports, and three years later agreed to purchase the rest, for a grand total of $551 million. That acquisition was a complete failure, and the company wound up abandoning the investment. It also spent $2 billion in 2021 to acquire Score Media and Gaming to establish a better online sports betting platform. Last year, it entered into a deal with ESPN to launch and operate ESPN BET.
Successful sports betting franchises can have substantial value. DraftKings is the leader and is valued at over $20 billion. Through ESPN BET, PENN aspires to achieve top-three status in the industry. Given that the market is ascribing negative value to ESPN BET, it’s fair to say that after the Barstool fiasco, investors have serious doubts about the company’s strategy and management’s competence to execute. Were the market to credit PENN with merely 15% of DraftKings’ value, that segment alone would be worth $20 per share.
PENN launched ESPN BET last November. The launch was largely successful and led them to achieve a top-three user share by adding one million customers in less than two months. This result was much better than expected and enabled PENN to project turning a profit a year earlier than its previous guidance. To accomplish this, the company spent more on upfront marketing to acquire customers than it had indicated. Though we had believed the rationale for increased spending was well understood, the market focused on the higher spend and punished the shares.”
