But while the US market is the juiciest prize for online gambling companies, with Bell Potter estimating it will be worth $8 billion and $10 billion in 2025, PointsBet has proven it can operate a sustainable and profitable gambling business in Australia. Here, it enjoys a 5 per cent market share.
In FY22, it generated net revenue of just under $200 million from an active client base of about 240,000 Australian customers.
“The business in Australia is EBITDA positive and has been the past two years showing PointsBet can operate a successful and profitable business after only a few years of entering the market,” Bell Potter analyst Chris Savage said, who maintains a speculative buy on the stock.
“The company also has a proven operating model it can follow in each state and province it establishes a presence in the US and Canada.”
While discussions with NTD are still hush-hush, PointsBet shares received another boost in January on the news it had amended its advertising deal with NBCUniversal.
Under the new terms, PointsBet needs to spend about $58 million a year on marketing across NBCU channels, rather than the original $90 million a year required for the next five years.
Investors were pleased PointsBet got a better deal on its NBCU marketing costs, but the high cash-burn of PointsBet and other online sport betting companies is weighing heavily on investors’ minds as the value of profitability over growth emerges as a dominant theme.
In a bid to stay competitive, a wave of consolidation is under way in the sector.
In a marquee deal that set the tone for the industry, Penn National Gaming bought Barstool Sports in early 2020 at a $US450 million valuation.
As it stands, three players make up 85 per cent of the US online sports betting market: FanDuel under the ownership of Flutter, DraftKings, and BetMGM, jointly owned by MGM Resorts and Entain.
PointsBet has secured an average market share of 3.7 per cent in the United States, with gross win margins at around 6.5 per cent. DraftKings and FanDuel are booking gross win margins of around 10 per cent.
Marketing is the main game in online gambling companies that are fighting for fresh eyeballs to turbocharge their “total net win” metrics. Total net win refers to the profits made from customers’ losing bets minus money paid out to customers with winning bets.
PointsBet, which derives 66 per cent of its revenue from Australia but is trying to boost the 33 per cent of revenue that comes from the United States, is trying to drive down its customer acquisition costs to stay competitive but some investors are doubtful it can pull it off.
‘Hard mountain to climb’
“We like the sports betting space; we just felt the US expansion and [the fact that] 85 per cent is dominated by three players is a hard mountain to climb for PointsBet,” Clayton Larcombe, portfolio manager at PAC Capital, which has recently removed PointsBet from the funds.
“The US is a graveyard at the moment, where B2C providers are having to spend large amounts of money to survive and in a tough macro environment are struggling to raise funds to fuel the growth.”
As of June last year, PointsBet had a customer acquisition cost of around $US1000, whereas DraftKings paid about $US1600 per new customer.
PointsBet also boasted a much lower marginal CAC of around $US295 on a trailing twelve-month basis, as opposed to DraftKings’ $US570 per customer.
At first glance, this indicates that PointsBet is more efficient in using its marketing expenses.
But return on investment is much better at the larger US firm. DraftKings enjoys $US832 in annual revenue per customer whereas PointsBet only secures $US410 per customer.
As such, DraftKings has a payback period of around 1.9 years, with PointsBet taking 2.9 years to earn their money back.