The Pointsbet Holdings Ltd (ASX: PBH) share price opened up 12% on Tuesday after the company delivered a solid Q3 FY20 result this morning. PointsBet shares have since dropped back and are currently up 1.08% at the time of writing.
Strong growth across key KPIs
The company delivered solid figures across key customer and financial metrics. The group (combined Australia and US operations) experienced a 97% increase in betting turnover, while its net win (income after winnings/prizes paid out) increased 147% to $18.8 million. Its active clients climbed to 106,000 users, or an increase of 63%.
Its Australian business is shaping up to be a strong standalone business. It achieved a record net win quarter while reaching positive earnings before interest, tax, depreciation and amortisation (EBITDA). Despite the fact that many major sports league all over the world are suspended, many of its clients have transferred to higher margin products, particularly thoroughbred, harness and greyhound racing.
PointsBet's US business is positioned for growth – it obtained market access to the state of Michigan and Kansas, while launching its 3rd digital sportsbook in Indiana. The company's ability to obtain licenses, enter new states and establish key partnerships is vital for its US growth story. However, its registered and active clients in the US has been sluggish, given global sporting suspensions.
Flexible business model
It is positive to see that PointsBet has planned and prepared for the ongoing suspension of key US sports. It has taken the initiative to reduce its sales and marketing expenses for Q4 from US$7.7 million to US$1.2 million. It will continue to seek opportunities in promoting and identifying other available sports and betting markets in the US, but curbing expenses is ultimately a positive during downtime.
As at 31 March, the company had a A$149.4 million cash position, the majority of which is held in USD with no borrowings. It is interesting to note that this quarter's (Q3) expenses were almost entirely covered by the movement in exchanges rates on cash held (A$15.5 million expenses vs. A$14.7 million benefit from exchange rates).
Moving forward
PointsBet is in a strong capital position with a relatively low expenditure and is well placed and prepared for the 're-launch' of global sporting operations. I am impressed to see its Australian business continue to deliver client and revenue growth, in what is otherwise a highly established and competitive sports betting market. This is shaping up to be a strong standalone business given its positive EBITDA. This will allow the business to focus more on the US.
The US business has achieved key market access and a roll out of operations in multiple US states. Its client and revenue growth has been slightly underwhelming in my opinion. However, all things considered, the business should be ready to pounce when global sports leagues pick up where they left off.
