The early stages of the US sportsbetting market is exhibiting growing pains, but that is to be expected given the size of the opportunity. PointsBet is making good progress in getting licenses, expanding its geographic footprint and establishing its bona fides as a leading sportsbetting and iGaming business.
The highlight of PBH’s 2Q22 was the securing of a New York license and the subsequent launch in that market. As part of a consortium, the New York venture is symptomatic of the frenetic pace of development of sportsbetting and iGaming in the US as each state legalises these activities. For a sports mad nation, it seems incongruous that sportsbetting had not been a part of the landscape. Now that it is, there is a scramble for market share, but not necessarily in the most sensible manner. PBH’s approach is entirely cool-headed and so while it may not be achieving meteoric growth in turnover metrics, its revenue growth is improving strongly.
We note that New Jersey sportsbetting customers are trending towards more sophisticated betting products, driving higher gross win margins. This plays to PBH’s strengths such as same game parlays and live betting where PBH announced it is the first sportsbook operator to offer live, in-play same game parlays on NFL and NBA.
PBH has also focused smartly on launching live in-play betting offerings in the US where an in-play bettor will make twice as many bets, 3x the average bet size and double the number of player days than a pre-game bettor. PBH’s focus on key sports like NFL, combined with key marketing programs and in-play betting products has already seen a 44% increase in in-play turnover in the latter part of the season.
Overall 2Q22 financial performance was a considerable improvement on an underwhelming 1Q22 outcome with US turnover/handle up 72% and net win up 65% (quarter on quarter) due to momentum in key markets such as Illinois and Michigan.
PBH has also been ramping up its iGaming activity with the launch of live dealer solutions in Michigan and New Jersey. iGaming has also been launched in West Virginia, with Pennsylvania and Ontario to follow in 2H22.
PBH’s quarterly cash burn of $104 million included a one-off US$35 million market access payment in New York. The company’s cash position is $523 million of corporate cash as at 31 December 2021 which is sufficient to fund its medium term organic growth initiatives.
Investment view
PBH believes the North American market in 2033 could be worth US$70 billion of gross gaming revenue across sports (US$42bn), horse racing (US$10bn) and iGaming (US$18bn). We have conservatively ascribed a 5% market share to a US$35 billion market by 2030 but the current share price is implying a paltry and unrealistic 1% market share. Regulatory and legislative changes remain a key risk for PBH along with competitive threats and new technology. We continue to recommend PBH as a Buy.
