Penn Earnings: Digital Business More Promotional Near Term, but Ramping Profits on the Horizon

Penn shares lost 14% of their value after fourth-quarter results showed far higher promotional spending for its interactive sports betting and iGaming business. While we expect some promotional activity around the launch of sports betting in North Carolina in March and New York later this year, we still estimate Penn’s interactive segment will produce a low-20% adjusted EBITDA margin by the end of this decade. This near-term expense and more tempered interactive market share assumptions over the intermediate term due to persistent competition drive our planned high-single-digit percentage reduction in our $27 fair value estimate. While shares might remain volatile in the near term, we see value for long-term-oriented investors.