Integrated gaming provider Penn Entertainment (NASDAQ:PENN) — which provides sports content and casino experiences — saw its shares decline conspicuously on Thursday. Earlier in the day, the company announced that it would initiate job cuts to support growth for its sportsbook partnership, ESPN Bet. However, the lack of business momentum has many investors jittery about the broader implications behind the Penn Entertainment layoffs.
By the numbers, the pink slips don’t sound like much. According to a CNBC report, the gaming specialist will separate with approximately 100 employees. Penn CEO Jay Snowden stated in an internal email that the workplace transition will enhance operational efficiencies. The head executive deems such efficiencies necessary following Penn’s 2021 acquisition of Canadian media and gaming brand theScore.
Per CNBC, Penn employs about 20,000 people. On paper, then, the Penn Entertainment layoffs represent a drop in the bucket. However, the move also implies that despite Penn hitting the ground running per Snowden’s language, the overall business hasn’t substantively improved. And while the job cuts aim to bolster growth for ESPN Bet, some of the pink slips affect the sportsbook.
Therefore, the ESPN Bet layoffs have raised alarm bells among investors, who may be getting impatient with the underlying business.
Penn Entertainment Layoffs Call Attention to Lack of Momentum
According to Ken Research, the U.S. online sports betting market may see a compound annual growth rate (CAGR) of approximately 12% between 2022 and 2028. One reason cited for the optimistic outlook is that the ecosystem may expand as more states green-light sports betting. Further, established operators — presumably with recognizable brands like ESPN Bet — should expand into these new states.
While the integrated gaming provider has been involved in significant wheeling and dealing, the Penn Entertainment layoffs essentially confirm that this promised momentum has been found lacking. Per data from Google Finance, the trailing five-year performance of PENN stock is less than 5%; hence, it’s easy to understand why investors are getting restless.
Further, the ESPN Bet layoffs are another slap in the face. Representing a $2 billion branding partnership with ESPN — which is owned by Disney (NYSE:DIS) — Bet was supposed to turn the ship around for PENN stock. After all, Penn axed its deal with Barstool Sports in favor of launching Bet. Unfortunately, the expected turnaround has simply not materialized.
For now, analysts rate PENN stock as a consensus moderate buy. However, the assessment is largely split between nine buys and 10 holds. Further, the Penn Entertainment layoffs arrive ahead of the company’s second-quarter earnings report, scheduled for early August.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
