Sports and betting seem to go together like apple pie and cream. After launching in 11 US states so far, PointsBet’s profile and products are making headway into the nascent US sportsbetting industry.
The heavy schedule of launches in so many states, each with its own process, has placed a burden on PBH’s resources and largely accounts for the EBITDA losses being accumulated. We expect such losses will continue in 2H22 before modestly improving in FY23f and significantly improving throughout FY24f and beyond. We anticipate PBH can reach cashflow and EBITDA positive operations from FY25f.
PBH’s corporate cash balance as at March 2022 was approximately $425 million (excluding about $50 million in player cash). This implies a quarterly cash usage of $98 million including an unfavourable FX movement of $8.6 million. Considering PBH’s plans for the rest of FY22f, we see the cash balance ending the financial year at about $351 million and then $80 million at FY23f. We continue to expect an equity raise, perhaps $200 million, in early FY24f and no further raising after that point.
Evidence that PBH is gaining traction comes from the Eilers & Krejcik app testing report placing PBH’s app in the top 3 of 34 apps. PBH was again handed the top sports betting operator award in the annual EGR North American awards.
Rankings and gongs are nice, but the real evidence is the rapid uptake of in-play sportsbetting which has swiftly reached 60% of PBH’s total North American volume. Campaigns that spanned the Super Bowl and March Madness (US College basketball) helped raise profile and usage.
Investment view
The investment and effort may seem elongated and large, but the prize is a share of a US sportsbetting market that could easily reach US$42 billion in 2033, alongside an iGaming market of US$18 billion. If PBH can achieve a 5% share of our own market estimate of US$35 billion by 2030, this will more than justify the long term investment in this industry.
The North American sports industries are huge and the belated legalisation of sportsbetting across most states appeals as an obvious winner.
We believe PBH is performing much better than the share price is suggesting. PBH is executing to plan to build scale and brand, increase its footprint and to leverage its skill and talent from existing business in Australia and the UK.
PBH already has a profitable and successful business in Australia that can help fund the growth in the much larger North American markets. The co-development of iGaming using the same skill sets will provide further growth.
Risks to investment view
The development of the North American sportsbetting markets is highly competitive and subject to new legislation on a state-by-state basis. Consumer demand for sportsbetting may not reach the levels anticipated.
Recommendation
We have retained our Buy recommendation.
