Penn Earnings: ESPNBet Fortunes Should Improve With Normalizing Hold and New Product Integration

No-moat Penn shares fell 8% during May 2 trading, as the company’s first-quarter digital business (13% of total revenue) was impacted by lower hold (house unlucky) and user monetization. We expect the fortunes of the digital segment to improve, as hold has already normalized in April, Penn improves monetization of its solid user share with parlay wagers and increased integration of the ESPN franchise this Fall, and the company launches a dedicated iGaming app in early 2025. Thus, we still expect modest US sports betting and iGaming revenue share gains over the next few years for Penn but plan to lower our 2024 digital revenue growth forecast to around 50% from our preprint 80%. As a result, we expect to reduce our $24 fair value estimate by around $2 per share, leaving shares undervalued.