PointsBet’s 4Q22 release perhaps coincides with the peak of its operating earnings losses. The company has reported commendable revenue growth for the year which has been dominated by the frantic state by state initiation of legalised sports betting in the US.
The Australian business again delivered a solid quarter with net win growth of 28% and that was against a strong previous comparable quarter. That is providing a genuine base from which PBH can continue to roll out its iGaming and sports betting offerings in the US where it has gained licences. Based on PBH’s cashflow disclosures as at 30 June 2022, we now think FY22f could represent the peak of EBITDA losses for PBH. FY23f should be a smaller EBITDA loss and we anticipate a substantial improvement thereafter towards breakeven in FY25f and heavily positive in FY26f.
Investment View
The global tech de-rate has done no favours to PBH and there is little the company can do about it. What PBH can control is the measured development of its US sports betting operations across multiple state jurisdictions into a nascent market. We still sit back and wonder how it is that until recently, the world’s largest sports market did not have legalised sports betting and iGaming. Partnering with NBC Universal and aggregating some world class technology from its European and Australian operations has given PBH a robust start in the US markets where it has gained licenced access. PBH is bringing some heavyweight experience and technology that should firmly establish its credentials as a trusted operator in its new markets. Overlaying that with some clever, but not excessive marketing will fertilise the growth over time. PBH’s leading in-game betting technology, for example, is proven in the European markets and can readily translate to US markets. PBH has now trialled its first in-game live odds offerings during regional MLB programming covering games featuring White Sox, Phillies and Mets games. The NBC free-to-play app has been downloaded by 663k users so far.
Other new markets such as Louisiana, Maryland, Kansas and Ohio are near term prospects to extend PBH’s footprint beyond the 10 US states already launched. Other markets such as California are still contemplating the legislative moves required to open up for sports betting. The barn door is wide open and while some states are unlikely to join the trend, there are more than enough prospective markets for PBH to participate.
Following the recent investment by SIG Sports Investments (12.8% stake in PBH), PBH has ended FY22 with a cash balance of A$473 million (excluding ~$47m in player cash). PBH’s quarterly cash burn has continued to soften and there is no immediate need for any further equity raising across FY23-24f.
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.
Recommendation
We have retained our Buy recommendation.
FIGURE 1: FY22 TURNOVER AND NET WIN
