Gaming leader re-focuses on Australia and Canada
- Wed 08 November 2023
PointsBet Holdings Limited ASX:PBH
PointsBet is doubling down on its local operations and those north of the US border.
Andrew Mellor, Group Chief Financial Officer
“We’re on a clear path to securing a top four position in Australia."
When Sam Swanell founded PointsBet in 2015 his initial aim was to build a profitable Australian business. By 2022, the company was generating net revenue of just under $200 million a year and had a five per cent share of the local online gaming market.
“We’re on a clear path to securing a top four position in Australia,” says group chief financial officer Andrew Mellor.
Swanell also had an eye on North America, where a federal law banning gambling on football, basketball, baseball and other sports was set to be overturned. In 2018, a Supreme Court decision paved the way for individual states to regulate sports betting within their own borders, creating an opportunity for PointsBet to build a US business.
PointsBet launched its US operations in early 2019 in New Jersey. By June 2023, it was operating in 14 US states. A combination of intense competition and high operating costs pushed out the profit timeline, necessitating further capital investment to fund the growth. On 30 June this year, shareholders approved the sale of the US business to Fanatics Betting and Gaming for $US225 million.
“This leaves us with our mature Australian business and the Canadian business we launched in April 2022, when Ontario legalised sports wagering and online gaming,” says Mellor.
Like US states, Canadian provinces are free to make their own sports betting laws. Several are following Ontario’s lead.
“Unit economics in Canada are also quite favourable in terms of the tax rates and relatively low market entry fees,” says Mellor. “Now Australia is providing the ballast while Canada is bringing a great opportunity for growth.”
A technology business
Technology is fundamental to PointsBet’s success and Mellor says their proprietary, in-house technology platform is tier-one. “Two years ago, we acquired the Irish sports betting technology company Banach Technologies, which added very sophisticated in-play, multi/parlay and cash out functionalities. We’re building our technology on very modern code so it’s efficient and scalable. Our technology supports our anti-money laundering and responsible gambling measures. We ensure customers can make informed decisions and exercise choice when it comes to their gambling expenditure.”
Mellor believes the technology platform helped to clinch the sale of the US business. “We sold a cut of our code to the Fanatics but, importantly, it’s still ours to use and develop independently in the future.”
Returning capital
PointsBet is returning capital in the wake of the US sale.
“We announced we will return between $1.39 and $1.44 a share to shareholders in a two-stage process,” Mellor says. “We’re in the process of returning the first dollar then, once the Fanatics transaction has been completed, we’ll deliver between 39 cents and 44 cents per share. Historically, we've raised capital to fund the US business, so this is a big change for us. As a result of the sale and the corporate cash on the balance sheet we're making a pretty decent capital return.”
The group anticipates being EBITDA positive in FY25.
“In the US, growth came with a certain amount of loss,” says Mellor. “Now our overall strategy is growth at a reasonable price while maintaining a cash balance to comfortably fund that strategy. We’ve given guidance that we expect the company’s FY24 revenue growth to be between 10 per cent and 20 per cent higher than in FY23, which we see as a reasonable growth profile. We're not expecting to need additional capital to fund the Australian, Canadian or technology businesses.”
“Now our overall strategy is growth at a reasonable price while maintaining a cash balance to comfortably fund that strategy."
Global investor relations
As an international gaming company, PointsBet takes a global approach to investor relations.
“In Australia, loss-making companies have to report cash flow every quarter, as well as half-year and full-year accounts,” says Mellor. “We saw that as an opportunity to engage with the market and investment community six times a year by hosting investor conference calls and in-person and virtual road shows. We also have seven sell-side analysts who provide really valuable investment engagement opportunities.”
Currently, the company’s top 20 shareholders make up 53 per cent of the register.
“Australian institutional shareholders account for about 12 per cent and North American institutional shareholders account for 26 per cent,” says Mellor. “We have two corporates as a result of historical strategic transactions, Penn National Gaming and NBC, who hold about eight per cent in total. We have seen a decent number of local small cap institutional investors come on to the register.
“PointsBet has always had a deliberate strategy of engaging with all investor types and, in our view, all shareholders are important. Our open engagement ensures everyone has the ability to communicate with the company, whether they are in Australia or overseas.”
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