The North American sports betting and iGaming market opportunity is very large, and no-one should be surprised at the scale of establishing and growing a business to compete in it. The buildout phase of Pointsbet’s business was always going to take time and plenty of money. The foundations have been laid and the technology and people resources are beginning to complete the framework.
Investment view
After gaining licenses in 10 key US states, as well as Ontario in Canada, PBH is rapidly rolling out its highly rated sports betting products and supporting it with marketing campaigns. There is still more technology and corporate costs to be added but we think the EBITDA losses have now peaked.
PBH has brought a stacked team to the market. It has a proven product suite, a comprehensive technology platform and a top drawer marketing strategy (including Shaquille O’Neale as PBH’s Australian ambassador). All three elements will need to work hard to secure an assumed 4% share of an estimated US$35 billion market by 2030.
PBH’s key edge in US sports betting markets (and elsewhere) could be its ‘in-play’ betting expertise. SIG Sports has brought its Nellie Analytics business into the frame which will work alongside PBH’s European technology business, PBE (formerly Banach). PBH’s in-play technology will benefit from faster bet placement, sharper pricing and hence a differentiated experience for customers. PBH will ultimately be able to take larger bets via increased wagering limits without compromising the business.
Additional markets such as California are yet to legislate for sports betting and iGaming, so there is an element of decision-making about which markets to pursue. These will obviously bring more initiation costs, but ultimately add to the opportunity.
PBH has attracted some high quality partners, including SIG Sports which recently invested $94.2 million in new shares to join Penn National (5.5%) and NBC Universal (3.3%) as strategic partners. Each partner brings something more than just financial investment and fully aligns with PBH’s strategy.
Of course, the financial input is certainly important as it provides sufficient funding for the next two years.
The share price performance has undoubtedly been disappointing, weighted down by the highly competitive process to win licenses, state by state in the USA, followed by the investment required to establish the business under each state’s regulatory regime.
The base is now there from which operational growth can flourish. There will be further investment in people and technology required, and the marketing of the product needs to be well executed. These risks can be managed by PBH’s proven management team.
Risks To Investment View
The development of the North American sports betting markets is highly competitive and subject to new legislation on a state-by-state basis. Consumer demand for sports betting may not reach the levels anticipated. Gambling in general carries risks of fraud, anti-money laundering, cyber-security risk, card payment risks and systems disruptions. Product fees, levies and taxes may increase.
Recommendation
We have retained our Buy recommendation.
Figure 1: FY22 operating results
Figure 2: USA markets FY22
Figure 3: FY22 result
