Why is the PointsBet share price dropping today?

This sports betting company's shares are falling on Tuesday…

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a man attending a sporting match looks down at his phone with his hand over his eyes in dismay as though his sporting bet has failed.

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The PointsBet Holdings Ltd (ASX: PBH) share price is under pressure on Tuesday.

In afternoon trade, the sports betting company's shares are down 1.5% to $2.02.

Why is the PointsBet share price falling?

The PointsBet share price is falling on Tuesday following the release of the company's quarterly update.

According to the release, PointsBet had a mixed time during the first quarter of FY 2023.

While the company's turnover continues to increase and rose 18% to $1,156.7 million, things weren't quite as positive for its gross win metric.

PointsBet reported a gross win margin of 10%, down from 11.9% a year earlier. This led to a 2% decline in sports betting gross win to $115.1 million. This was driven largely by its Australian operations, which reported a 17% decline in gross win to $73 million.

Pleasingly, the company's iGaming operations had a strong quarter and delivered a 287% increase in net win to $8.5 million. This took PointsBet's total net win to $78.8 million, which represents a 13% increase over the prior corresponding period.

What about costs?

Once again, PointsBet's growth came at a cost.

The company reported quarterly cash receipts from customers of $81.6 million. However, to generate this, PointsBet spent $40.9 million on its cost of sales, $45.7 million on sales and marketing activities, and $27.6 million on staff costs for the three months.

This and other expenses led to the company reporting a net cash outflow of $60.7 million, reducing its cash balance to $412 million excluding player cash.

Based on that burn rate, PointsBet has 6.8 quarters of cash remaining.

Though, it is worth remembering that the company has its deferred bonus equity options (DBEO) to call upon if required. This provides PointsBet with the opportunity to raise up to approximately $150 million during the next two years. It's looking like those funds may be required!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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