Casino, sports betting and entertainment operator PENN Entertainment (NASDAQ:PENN) missed analysts' expectations in Q1 CY2024, with revenue down 4% year on year to $1.61 billion. It made a GAAP loss of $0.76 per share, down from its profit of $3.05 per share in the same quarter last year.

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Jay Snowden, Chief Executive Officer and President, said: “Our property level performance showed resilience this quarter, with stable trends continuing into April following portfolio-wide severe weather through mid-February. Meanwhile, ESPN BET continues to drive strong top of funnel demand due to the reach and affinity for the ESPN brand, which led to record online sports betting handle and iCasino gross gaming revenue in the quarter. However, Interactive segment results were negatively impacted primarily by unfavorable hold from major sporting events. We look forward to unveiling additional product enhancements and unique media integrations with ESPN ahead of the 2024 football season. Our improved online product offering will help engage, reactivate, and retain our expanding database, while also advancing our strategy to create a highly differentiated experience for sports fans and sports bettors.

Established in 1982, PENN Entertainment (NASDAQ:PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.

Casino Operator

Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. PENN Entertainment's annualized revenue growth rate of 7.5% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. PENN Entertainment's recent history shines a dimmer light on the company as its revenue was flat over the last two years.

This quarter, PENN Entertainment missed Wall Street's estimates and reported a rather uninspiring 4% year-on-year revenue decline, generating $1.61 billion of revenue. Looking ahead, Wall Street expects sales to grow 10.9% over the next 12 months, an acceleration from this quarter.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

PENN Entertainment was profitable over the last two years but held back by its large expense base. It's demonstrated mediocre profitability for a consumer discretionary business, producing an average operating margin of 9.7%.

In Q1, PENN Entertainment generated an operating profit margin of negative 1.3%, down 13.2 percentage points year on year.

Over the next 12 months, Wall Street expects PENN Entertainment to become more profitable. Analysts are expecting the company’s LTM operating margin of 2.8% to rise to 5.5%.

Key Takeaways from PENN Entertainment's Q1 Results

Revenue missed but ESPN BET was a bright spot. "ESPN BET...led to record online sports betting handle and iCasino gross gaming revenue in the quarter." The company also announced the hiring of Aaron LaBerge as the new Chief Technology Officer. “Mr. LaBerge brings more than 20 years of experience at The Walt Disney Company, most recently serving as the CTO for both Disney Entertainment and ESPN." The stock is up 2.1% after reporting and currently trades at $16.75 per share.

So should you invest in PENN Entertainment right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.