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ESPN Bet undervalued by market, says investment bank 

| By Marese O'Hagan
Truist Securities released an update on its valuation of Penn Entertainment, raising its share price target from $23 to $25 and highlighting the value of its ESPN Bet product.

In Truist’s note – authored by Barry Jonas, Patrick Keough and Ramin Robhany – the bank reiterated that ESPN Bet was undervalued.

“ESPN Bet integrations appear on track with a lot riding on football season,” it read. “As we outlined in our recent upgrade (and now supported by activist letters), we think the market is undervaluing the company.”

The bank emphasised ESPN Bet’s revamped parlay product and base ESPN Fantasy app integration as two features that are “very unappreciated” by the market. Truist also named Penn’s Hollywood igaming brand, theScore Ontario and Penn’s skin fees as other underappreciated features.

Truist noted that the betting brand represents a core product for Disney and its direct-to-consumer strategy and praised supposed plans to integrate the two entities.

“We see ESPN Bet as a core tenant of DIS’ ESPN DTC strategy, and are encouraged by both companies’ commentary about deeply integrating the two,” the update continues. “While the market is hesitant to give Penn value for ESPN Bet today, we think the more integration work done ultimately drives more value to Penn.”

It added that, in its view, Disney does not want to hold a gaming licence and “an integrated betting application seems to be a strategic priority to Disney’s wider digital strategy”.

Truist made a similar assertion in regards to the sports betting brand in its April Penn update, when it upgraded Penn’s rating from Hold to Buy. It also said that Penn would likely continue to operate as normal if ESPN Bet failed, despite the $1.5bn price tag attached to the deal.

Support for integrating ESPN Bet

Earlier in April, Truist published its 2024 Interactive Gaming Survey. The bank harked back to this survey and how customers purportedly viewed the ESPN Bet product.

Of the 97% of survey respondents that placed bets with ESPN Bet, 52% said it was likely and 45% said it was possible that it would become their primary betting app.

The full range of ESPN’s channels will be released as a “standalone digital destination” in 2025. This includes “seamless” sports betting through the betting product, Truist said.

This latest evaluation follows a swarm of rumours surrounding Penn. Last month the Donerail Group – a Penn shareholder – sent a letter to Penn’s board of directors encouraging the company to sell assets. This, the letter read, would see “meaningful and certain” value creation for investors.

As a result of the letter, Penn’s shares spiked 20% on the New York Stock Exchange to $17.50.

Truist opined that the letter was unlikely to spark a formal strategic review at Penn. It pointed to ESPN Bet’s clear product roadmap, the upcoming football season and the effect of high interest rates on M&A as likely reasons.

Disappointing performance for Penn in Q1

Despite positivity around long-term growth, Penn’s first quarter results saw a 3.8% drop in revenue to $1.61bn. Its Interactive segment – which includes ESPN Bet – contributed to this, with revenue sliding 11.1% year-on-year to $207.7m.

During the quarter, ESPN Bet went live in North Carolina and Penn acquired Wynn Interactive’s New York sports betting licences, clearing a path for ESPN Bet to launch in the state in 2024.

Despite the middling financial results, Jay Snowden, CEO and president of Penn, said that ESPN Bet had performed well in Q1.

“ESPN Bet continued to attract new users while maintaining a disciplined approach to promotions and marketing expenses,” he said. “However, our financial results were impacted by lower-than-expected hold and spend per user.”

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