Penn National Gaming Inc. (NASDAQ: PENN) is cashing in on the growth of legalized sports betting.
Penn National has launched its Barstool Sportsbook App in Pennsylvania, Michigan, Illinois, and Indiana. The Barstool Sportsbook app takes bets on many contests including the NBA, the PGA Tour, the NFL, the NHL, UFC, Major League Soccer (MLS), Major League Baseball (MLB), NASCAR, College football, boxing, and college basketball.
Barstool lets Penn National (PENN) make money by taking bets outside its casinos. Sports betting is a growing business in the United States. US Sports betting revenues rose from $430.7 billion in 2018 to $908.9 billion in 2019 to $1.55 billion in 2020, Statista estimates.
Can Penn National Make Money from Barstool Sports?
The US Supreme Court gave states the right to legalize digital sports betting in a 2018 ruling called Murphy v. National Collegiate Athletic Association. In Murphy, the Supremes struck down the Professional and Amateur Sports Protection Act. That federal law banned commercial sports betting in the United States.
Hence companies such as Penn National Gaming (PENN) can now offer digital sports betting without a casino. Penn National has ownership interests in 42 gaming and racing properties in 20 states. Penn offers live sports betting in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Pennsylvania and West Virginia.
Penn National bought a 36% in Barstool Sports in 2020. Penn claims Barstool has 66 million fans. Besides Barstool, Penn Interactive Ventures LLC operates iCasino online betting sites in Pennsylvania and Michigan.
Penn National’s assets include over 20 million members in its mychoice Casino loyalty program, 48,000 gaming machines, 1,300 table games and 8,800 hotel rooms.
Can Online Sportsbooks Make Money?
Thus Penn National (NASDAQ: PENN) can show us if online sportsbooks make money. Notably, Penn’s quarterly gross profit has exploded over the past year.
Penn National reported a quarterly gross profit of $39 million on 30 June 2020. The quarterly gross profit grew to $694 million on 30 June 2021. Similarly, the quarterly operating income rose from -$165.4 million on 30 June 2020 to $377.90 million on 30 June 2021.
Revenue growth at Penn National is astounding. Stockrow estimates Penn National’s revenues grew by 405.23% in the quarter ending on 30 June 2021. In contrast, the revenues shrank by -78.87% in the quarter ending on 30 June 2020.
Overall, Penn National’s quarterly revenues grew from $306 million on 30 June 2020 to $1.546 billion on 30 June 2021. Cynics will observe that Penn’s revenues fell because the COVID-19 pandemic closed casinos last year. The casinos are now reopening as people get vaccinated.
However, the growth coincides with Penn’s purchase of Barstool Sports. Hence, digital betting is now driving Penn National’s growth. One reason digital betting is exploding is that COVID-19 scares some bettors away from physical sports books. It is also easier and cheaper to bet online.
How Much Cash Does Penn National Generate?
Penn National (NASDAQ: PENN) generates some cash. It reported a quarterly operating cash flow of $356.20 million on 30 June 2021.
The quarterly operating cash flow grew from -$79.20 on 30 June 2020. The quarterly operating cash flow grew from $184.70 million on 31 December 2019, before the COVID-19.
In contrast, the quarterly ending cash flow fell from $513.50 million on 30 June 2020 to $211 million on 30 June 2021. However, Penn National can generate enormous amounts of cash. It reported a quarterly operating cash flow of $2.084 billion on 31 March 2021.
Penn National borrowed some money in 2020. It reported quarterly financing cash flows o$508.8 million on 31 December 2019, $627.8 million on 31 March 2021, and $270.5 million on 30 June 2020. The quarterly financing cash flow fell to -$73.40 million on 30 June 2021.
During the pandemic, Penn National’s Total debt rose from $7.026 billion on 31 December 2019 to $11.150 billion on 30 June 2020. Thus, Penn had to borrow to survive the Pandemic.
However, Penn National finished the COVID-19 pandemic with more cash. Penn National’s cash and short-term investments rose from $730.7 million on 31 March 2020 to $1.259 billion on 30 June 2020 to $2.294 billion on 30 June 2020.
What Value does Penn National Have?
Penn National (PENN) gained value during the pandemic. It’s total assets grew from $14.332 billion on 30 June 2020 to $15.078 billion on 30 June 2021.
Moreover, Penn National’s stock price grew from $56.18 on 25 August 2020 to $83.56 on 27 August 2021. However, the share price hit a high of $130.47 on 12 March 2021.
Thus, Penn National has enormous growth potential but a low margin of safety. The growth potential is enormous because of the revenue growth. The margin of safety is low because the stock price can rise and collapses.
If you are seeking a gaming stock, that can profit from sports books. Penn National is worth national. However, I do not consider this stock a good buy because it pays no dividend. Penn National is a gaming stock to watch not to buy.