Corporate bookmaker PointsBet Holdings Ltd (ASX: PBH) ascended to stardom after its share price more than doubled in 2019. The company presented a unique opportunity to leverage the legalisation of sports betting in the United States and the significant revenue potential at hand.
However, the coronavirus pandemic has resulted in the suspension of many major sports including the NBA, soccer, the AFL and tennis.
The Pointsbet share price soared 23% last Thursday, and has rocketed out of the gates again today to be up by 9.04% at the time of writing. That puts its share price gains over the past 2 days of trading at 32% so far.
But is this share price jump a dead-cat bounce, or a buying opportunity?
Pointsbet's coronavirus response
PointsBet has acknowledged and supports the precautionary measures being taken by sporting administrative bodies under these dire circumstances. While it has not provided any forward looking statements or forecasts, it did note that as of 31 December 2019, it had AU$147.9 million of corporate cash on the balance sheet, the majority of which is held in US dollars (this number could be higher, given this year's AUD/USD movements). The company has no borrowings, with flexibility to adjust its marketing spend given the developing circumstances.
Last Thursday's closing price of $3.43 gives PointsBet an approximate market capitalisation of $450 million. It hit an all-time low in March of just $1.10 or an approximate market capitalisation of $135 million – meaning its corporate cash position was greater than its market cap.
Less betting 'markets' but expansion continues
While there may be less sporting markets to bet on, PointsBet have been busy receiving sports betting licenses and partnerships in the US.
On 6 March, it received a Mobile Sports Wagering Launch Authorisation from the Indiana Gaming Commission and has launched operations in the State of Indiana. Indiana is the 17th largest US state by population and presents an estimated US$317 million p.a sports wagering revenue in CY23. As the state is relatively new to legalised sports betting, there is a relatively limited number of competitors.
On 25 March, Pointsbet received an Internet Sports Betting Operator License and a Sports Betting Operator License by the Colorado Limited Gaming Control Commission. It intends on operating both online and retail sportsbooks and anticipates taking its first bet in the second half of the calendar year. Colorado's market size is estimated to be US$296 million p.a. in FY23.
Moving forward
There is a case to support PointsBet as a buy at today's prices. However, there is still much uncertainty as to when core sports leagues will resume playing. The limited betting markets available for customers and the closure of retail betting outlets could have a significant strain on Pointsbet's revenues.
The bottom line is that the company has an excellent cash position and the flexibility to reduce its marketing and administrative expenses. Despite the lockdown, it has still been able to obtain pivotal licenses. While it might not be a safe 'bet' at today's prices, in my opinion the long-term story is still intact.
