The shares of Penn National Gaming (NASDAQ: PENN) and Draft Kings (NASDAQ: DKNG) have touched down to pre-pandemic levels despite all the frenzy associated with sports betting and iGaming business in the U.S. With 44 properties across 20 states in the country, Penn National is an omni-channel provider of conventional casino gaming, online gambling, horse racing, sports betting, and related services. Whereas Draft Kings is a dedicated digital sports entertainment & gaming company with daily fantasy sports, sports betting, and online casino as key service offerings. Lately, high competitive rivalry due to multiple players including bet365, HardRock Café, BetMGM, FanDuel, and William Hill has become a concern for investors. However, DKNG stock has a market capitalization of $5.7 billion and Penn stock is trading at pre-pandemic levels of $6.3 billion despite comparable digital service offerings. Thus, Trefis believes that Penn stock is poised for more gains. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis, Penn National Gaming vs. Draft Kings: With Return Forecast Of 31%, Penn National Gaming Is A Better Bet
- Revenue Growth
Draft Kings’ growth has been much stronger than Penn National Gaming in recent years, with DKNG’s revenues nearly doubling every year from $226 million in 2018 to $1.3 billion in 2021. PENN’s revenues have observed an average growth rate of 18% p.a. from $3.6 billion in 2018 to $5.9 billion in 2021. While Penn National Gaming reported a 32% topline contraction in 2020 due to the pandemic, Draft Kings observed consistent growth largely due to pent-up demand for online sports betting services.
- Draft Kings’ Online Gaming, Gaming Software, and Other segments contribute 88%, 8%, and 4% of total revenues, respectively. In the past three years, the average monthly unique players (MUP) and average revenue per monthly unique player (ARPMUP) have grown by 118% and 71%, respectively, resulting in strong revenue growth.
- Penn National’s key services including gaming, food & beverage, hotel, and other contribute 84%, 5%, 4%, and 7% of total revenues, respectively. The company’s gaming business observed strong growth in recent years mainly driven by multiple acquisitions. Notably, the company earns nearly 90% of gaming revenues from slot machines which have a casino win rate of 7%.
- While Draft Kings and Penn National Gaming remain committed to the long-term success of their sports betting applications, Penn’s Interactive gaming segment contributes 7% of the total revenues and is expected to reach meaningful levels by 2023. In 2021, Penn’s Interactive segment reported $433 million of revenue – almost a quarter of Draft Kings.
- While the conventional casino industry observed a contraction from restriction measures and intermittent lockdowns during the pandemic, online casino businesses reported strong growth numbers.
- Per Draft Kings’ analyst presentation, the online sports betting and iGaming market in the U.S. is expected to reach $22 billion and $40 billion at maturity, respectively. Considering the 15-20% targeted market share by Draft Kings and Penn National Gaming, the topline of both companies is likely to achieve meaningful growth in the coming years. (related: Why Is The Market Rewarding MGM Resorts Stock?)
- Returns (Profits)
Penn National Gaming has a well-established conventional casino business apart from its recent foray into the sports betting and iGaming market. In 2021, Penn reported an operating profit margin of 18%. On the contrary, Draft Kings is currently focusing on user acquisition and investing heavily in marketing and general & administrative expenses.
- In 2021, Penn National reported $5.9 billion of total revenues and $896 million of operating cash flow at an operating cash flow margin of 15%. The company invested $1.2 billion in property, plant & equipment & acquisitions, and raised $340 million of long-term debt.
- However, Draft Kings reported $1.2 billion of revenues and a net loss of $1.5 billion. The company burned $420 million of operating cash, invested $200 million, and raised $1.2 billion from convertible notes.
Per recent filings, Penn National reported $11.2 billion of long-term debt (including finance and operating leases), $4 billion of total equity, and $16 billion in total assets. Whereas, Draft Kings does not have significant long-term debt obligations on its balance sheet. Draft Kings reported $1.6 billion of total equity and $4 billion of total assets which include $2.1 billion of cash and $1.1 billion of intangibles & goodwill.
- While higher financial leverage leads to higher cash burn during a downturn, Penn reported positive operating cash flow in the last two years.
- Draft Kings’ balance sheet comprises more of cash and intangible assets. Thus, the stock’s current market capitalization is linked to expectations of long-term revenue growth and profitability.
- Despite high financial leverage, Penn’s net margin of 8.6% assists $500 million of annual interest expenses. (related: Key Points In Favor Of Wynn Stock)
|S&P 500 Return||-8%||-12%||87%|
|Trefis Multi-Strategy Portfolio||-7%||-14%||237%|
 Month-to-date and year-to-date as of 4/29/2022
 Cumulative total returns since the end of 2016