In a recent note, financial institution Truist made a compelling argument asserting that ESPN Bet remains undervalued by the market. The report, authored by analysts Barry Jonas, Patrick Keough, and Ramin Robhany, emphasized the promising trajectory of ESPN Bet, particularly as it dovetails with the upcoming football season. “ESPN Bet integrations appear on track with a lot riding on football season,” the analysts commented. “As we outlined in our recent upgrade (and now supported by activist letters), we think the market is undervaluing the company,” they added.
A significant focal point of Truist’s analysis was ESPN Bet’s revamped parlay product and its integration with the core ESPN Fantasy app. These features, according to the note, have not received the recognition or appreciation they deserve. The bank also shed light on other overlooked assets within Penn’s portfolio, including Penn’s Hollywood igaming brand, theScore Ontario, and Penn’s lucrative skin fees.
In light of ESPN Bet’s position within Disney’s direct-to-consumer (DTC) strategy, Truist underscored the potential benefits of integrating the sports betting platform more deeply with Disney’s digital ecosystem. The note stated, “We see ESPN Bet as a core tenant of Disney’s ESPN DTC strategy, and are encouraged by both companies’ commentary about deeply integrating the two.” This strategic merger, Truit believes, could eventually propel Penn’s valuation upwards, despite current market hesitations.
Truist’s analysis highlighted Disney’s apparent disinterest in directly holding a gaming license, framing the integration of ESPN Bet into Disney’s broader digital strategy as a pivotal move. “An integrated betting application seems to be a strategic priority to Disney’s wider digital strategy,” the analysts noted.
This isn’t the first time Truist has expressed optimism about Penn and ESPN Bet. Back in April, the bank upgraded Penn’s rating from Hold to Buy, predicated on similar arguments about undervaluation. It also speculated that even if ESPN Bet fell short of expectations, Penn would likely continue its operations unaffected by the $1.5 billion deal.
Earlier this year, Truist released its 2024 Interactive Gaming Survey, providing key insights into customer sentiment around ESPN Bet. The survey revealed that out of the 97% of respondents who had placed bets via ESPN Bet, 52% indicated it was likely, and 45% said it was possible, that it would become their primary betting app. This enthusiasm among bettors reinforces Truist’s upbeat outlook on ESPN Bet’s market potential.
An added layer of intrigue came from the announcement that all ESPN channels would be launched as a standalone digital destination by 2025.
. Truist commented on this development, emphasizing the seamless integration of sports betting through the ESPN Bet platform.
Rumors swirling around Penn have added another dimension to the unfolding narrative. Just last month, Penn’s board of directors received a letter from The Donerail Group, a Penn shareholder, urging the sale of certain assets to unlock value for investors. This recommendation led to a 20% spike in Penn’s shares on the New York Stock Exchange, rising to $17.50.
Despite this surge, Truist remained skeptical about the likelihood of a formal strategic review at Penn. The bank cited ESPN Bet’s clear product roadmap, the approaching football season, and high interest rates affecting mergers and acquisitions (M&A) as reasons for its caution.
In the face of promising long-term projections, Penn’s first quarter financial results painted a more complex picture. The company saw a 3.8% drop in revenue, totaling $1.61 billion, with its Interactive segment—including ESPN Bet—recording an 11.1% year-over-year decline to $207.7 million. Despite these figures, Penn persisted with its expansion plans, with ESPN Bet going live in North Carolina and Penn acquiring Wynn Interactive’s New York sports betting licenses, setting the stage for a 2024 ESPN Bet launch in the state.
Jay Snowden, CEO and President of Penn, maintained a positive tone amidst these financial disclosures. He noted, “ESPN Bet continued to attract new users while maintaining a disciplined approach to promotions and marketing expenses. However, our financial results were impacted by lower-than-expected hold and spend per user.”
Overall, Truist’s assessment punctuates the narrative that ESPN Bet—despite facing some headwinds—is on a promising path that the market has yet to fully appreciate. As the football season approaches and integration with Disney deepens, analysts and investors alike will be keenly watching for signs that Truist’s bullish perspective might be validated.
