Is it too late to buy the PointsBet (ASXBH) share price?

Lina Lim | September 23, 2020 10:28am | More on: PBH

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The PointsBet Holdings Ltd (ASX: PBH) share price has cooled down to a 50% increase since its game changing partnership with NBCUniversal. Has the market already priced in the company’s potential or is there still an opportunity to hop onboard the PointsBet share price?

PointsBet front and centre

PointsBet is partnering with one of the most iconic and trusted media brands in the United States with the largest sports audience. Its broadcast network reaches all US TV households and its regional sports networks are well positioned in legalised sports betting markets. The partnership will involve US$393 million marketing spend from PointsBet in progressively increasing amounts over the 5-year media partnership. NBC will also receive incentives for customer referrals and issued skin in the game with a 4.9% interest stake in PointsBet. The partnership, marketing spend and interest stake value the deal at nearly US$500 million.

Is the PointsBet share price valuation an issue?

The partnership has seen PointsBet balloon to a $1.8 billion valuation on just $75 million revenue in FY20. The revenue to market capitalisation valuation is similar to many buy now, pay later companies. Despite the ballooning valuation, I don’t see this as an issue. The PointsBet share price should continue to improve dependent on its ability to secure key sports betting access, partnerships and key performance milestones. Its recent capital raising places the company in a strong position to pursue growth opportunities and marketing spend to acquire customers and market share in the US. Conversely, the lack of announcements could see interest and sentiment drop for the PointsBet share price. Much like buy now, pay later companies that soared in July and August following announcements such as new SME credit products and expanding into new geographies, the recent lack of news has seen share prices come back to earth.

A significant market opportunity

The US sports betting market is a significant revenue opportunity. Investment banks Morgan Stanley and JPMorgan Chase & Co. have both estimated the potential combined online and retail sports betting market to be worth approximately US$12 billion by 2025.

More recently, the state of New Jersey has seen a V-shaped recovery in sports betting turnover. The state set a new monthly record for any US jurisdiction permitting legal wagering with US$668 million of wagers in the month of August. This clears the previous record by more than US$100 million. From a bookmaker perspective, sportsbooks won US$39.5 million of the dollars wagered, or approximately 5.9% of turnover.

Foolish takeaway

PointsBet is cashed up with a game changing partnership under its belt. This should see a significant improvement in its ability to acquire customers and gain market share in the US. The restart of major sports leagues in the US should see an improvement in market conditions and betting volumes. However, PointsBet will need to continue to step into new states to scale the opportunity at hand. The current volatility in the general market is a risk for the PointsBet share price, but I don’t see the company has being overvalued either.