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Is the Pointsbet share price poised for future growth?
21st May, 02:43Furthermore, as highlighted in a recent article published on the ESPN website, the US now has 18 states with regulated sports betting markets. This means just over 30% of the US population has access to legalised sports betting. The article goes on to say that more than half of all US states will offer legal sports betting within the coming years.
The AFL season will officially resume on 11 June following an unprecedented suspension of play. This could spell good news for the Pointsbet Holdings Ltd (ASX: PBH) share price and peers such as Tabcorp Holdings Limited (ASX: TAH).
Furthermore, as highlighted in a recent article published on the ESPN website, the US now has 18 states with regulated sports betting markets. This means just over 30% of the US population has access to legalised sports betting. The article goes on to say that more than half of all US states will offer legal sports betting within the coming years.
Also, earlier this month, 2 sports betting bills passed a vote in the Senate in Louisiana. These bills will now move to the House of Representatives. If both bills pass through the House, it's possible sports betting will be legal in that state by the year's end.
The more sports betting markets that open up, the more turnover will result for bookmakers like Pointsbet. In the company's Q3 update for its Australian business, Pointsbet saw clients transferring to higher margin products such as thoroughbred, harness and greyhound racing. This was as a result of the suspension of AFL and NRL and the the timing could not have been better for the company. After all, it had just executed a Tier 1, Australian horse racing partnership with Channel 7.
Pointsbet's turnover in Australia increased 58.3% in Q3 FY20 vs. Q3 FY19. Despite this being 3.5% down on Q2 FY20, this is still a strong result, particularly given the impact of coronavirus.
With coronavirus restrictions beginning to ease, the UFC is running 3 events this month, the AFL has locked in a start date and many sports leagues around the world are planning their returns. This can only mean good news for Pointsbet's revenue, growth and share price.
Pointsbet currently derives most of its US revenues from the state of New Jersey. It also has access in Iowa, Indiana, Kansas and Colorado. The company's US turnover tells a similar tale to its performance in Australia. Turnover soared 285.4% between Q3 FY20 vs. Q3 FY19, but fell 19.4% on Q2 FY20 results.
Pointsbet's response to COVID-19 includes scaling down its major expenses including employee, sales and marketing costs. Its business costs are highly correlated with betting turnover, revenue and deposit/withdrawal volumes. As such, these costs will likely reduce proportionally with the expected fall in these metrics. Its marketing expenses are also variable in nature, and the company is preparing to significantly reduce this expense for the quarter to 30 June 2020.
I think the favourable regulatory conditions in the US will create a great springboard for Pointsbet's growth as things return to 'normal'. The company has an unbelievably strong cash position of $149.4 million, relative to its market capitalisation. It also has no borrowings. Pointsbet is cashed up and, I believe, poised for future share price growth.