TopBetta Holdings Ltd. (TBH.ASX, A$0.20, Mkt cap A$24.6M) – Very...

TopBetta Holdings Ltd. (TBH.ASX, A$0.20, Mkt cap A$24.6M) – Very strong user growth in Q3 BUY, PT $0.45.


**DESK COMMENTARY**


Initial 10,000 user target likely to be reached very comfortably

• In conjunction with its presentation at TechKnow invest in Brisbane yesterday, TBH provided an update on its performance in the March quarter.
• The standout metric for us was the number of new users. This number grew from 2,882 at the end of Q2 (December) to 4,247 at the end of Q3, which is a 47% increase in just one quarter. This brings the average number of active users in Q3 to 3,564 versus our estimate of 3,000.
• We believe the kickoff of the Fairfax Media deal in the final week of March was a strong driver of new user growth, which bodes very well for the upcoming quarters.
• Based on user growth in Q3, we believe TBH should be able to comfortably achieve its initial target of 10,000 users by the end of 2016.

Gross betting revenue increased 97% q-o-q

• Equally as impressive was Wagering & Tournament turnover during the quarter, i.e. the gross betting amount TBH received during the quarter, which increased by 97% q-o-q to A$7.5M.
• Due to a relatively high number of favorites winning in Racing in particular, resulting in a relatively high pay out to punters, the net Wagering & Tournament revenue (after paying out winnings) increased by “just“ 31%. The implied 7% margin is below the longer term average of 10% and is likely to have affected all gaming companies in Q3.
• Going forward, we continue to forecast an average 10% margin for each individual quarter given the statistical nature of the betting odds and the long term aggregated race results on which betting odds, and thus TBH’s margins, are based.
• Content revenues were down 14% q-o-q as Q3 is seasonally weak compared to Q2, which includes the Melbourne Spring Racing Carnival. In the next few months TBH will be expanding its Premium Content offering for NRL and AFL, which should substantially drive revenues from Premium Content.

One of the most compelling stocks in the Tech space

• In our view, TBH is one of the most compelling stories in the Tech space given its strong revenue growth, limited cash burn as well as its clear, and short, path to break even and beyond.
• Furthermore, based on yesterday’s update, it appears growth of TBH’s key metrics is accelerating.
• We reiterate our Buy recommendation for TBH and our A$0.45 price target.