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The Pointsbet share price is up 20% in 2020, is it time to buy?

18th January, 00:13

On Monday, UK bookmaker William Hill upgraded the outlook for its US business to 'break-even' for 2019 on the back of wagering growth and disciplined investment.

The Pointsbet Holdings Ltd (ASX: PBH) share price has gone parabolic, soaring by more than 20% this year. Investors have become increasingly bullish about the company's potential in the US sports betting market as states are continuing to legalise both retail and mobile sports betting. There are significant opportunities for bookmakers as sports betting becomes more accepted in the US and existing punters transition from black market sites to licensed bookmakers.

On Monday, UK bookmaker William Hill upgraded the outlook for its US business to 'break-even' for 2019 on the back of wagering growth and disciplined investment.

On the flip side, players from DraftKings, FanDuel to Pointsbet have all been aggressively marketing and pushing promotions in an attempt to capture as much market share as possible. All 3 bookmakers are expected to report losses for the 2019 calendar year, however, William Hill's break-even outlook does highlight a road to profitability rather than a bottomless money pit.

Pointsbet's largest US operations reside in the state of New Jersey. The state has recently announced a December sports betting handle of US$577.8 million, or a total of US$4.5 billion wagered in 2019. This compares to the mere US$1 billion that was wagered from June to December in 2018, the first 7 months of legalised betting in the state. Operators made some US$300 million in sports betting revenue within the state, but more than 75% of that money was earned by FanDuel and DraftKings. Pointsbet is looking to establish at least 10% market share moving into 2020.

Sports betting is also lucrative for states to legalise - New Jersey brought in more than $100 million in taxes from operators.

Pointsbet launched in New Jersey in January 2019, its retail sportsbook launched in Iowa in August 2019, and it secured online operations in Michigan in January 2020.

The company also has an online sportsbook access and some retail access in Indiana, West Virginia, Illinois, Colorado, Louisiana, Missouri, New York and Ohio. These states represent varying opportunities, with smaller states such as Colorado and Missouri worth an estimated market size of US$290 million by 2023, while New York is estimated to be worth a whopping US$1.35 billion by 2023.

The next milestone for Pointsbet could be obtaining the necessary licenses to operate in Michigan following the states legalisation of online and retail sports betting in December 2019, as well as the launch of Pointsbet online in Indiana and confirmation of when it will launch in West Virginia.

The US sports betting market is a significant opportunity for Pointsbet moving into 2020, but there are a number of risks around the execution of its growth strategy and expenses.

It is positive to see that the company has continued to gain market share in New Jersey, from 2.2% in February 2019, 5.4% in June 2019 and 6.7% in October 2019. However, its operations in New Jersey and other states represent a significant capital outlay and the company reported a $41.9 million net loss in FY19.

I believe the company will continue to experience rapid growth in its user base and revenues while expenses may continue to balloon. The question is whether or not the company can normalise its losses and map out the road to profitability, or continue to rely on investors for its expansion across the US. Ultimately, given the sheer size and opportunity at hand, I believe it would be worthwhile to watch this story closely.