One of the best performing companies on the ASX has been lottery ticket reseller Jumbo Interactive Ltd (ASX: JIN). The company, which operates Oz Lotteries and specialises in using digital online technologies to create engaging ways to retail tickets for government and charitable lotteries, has seen its share price surge almost 250% higher over the last 12 months.
This easily bests the share price performance of other market darlings like Afterpay Touch Group Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC) over the same time period and goes to show how much money there is to be made in gambling. Jumbo's revenues surged 64% higher in FY19 to $65.2 million, and a low operating cost base meant that the company was able to keep $26.4 million of that as net profit.
And Jumbo is still only a small player in a multi-billion dollar industry. According to the most recent edition of the Australian Gambling Statistics compiled by the Queensland Government's Statistician's Office and covering the 2017 financial year, Australians spent close to $23.7 billion on gambling, with about $1.8 billion of that on lotteries and lotto. But one of the fastest-growing categories of gambling expenditure in 2017 – far outstripping lotteries – was sports betting, increasing by over 15% to a little over $1 billion.
So if you feel like you missed the boat with Jumbo, perhaps newly-listed corporate bookmaker Pointsbet Holdings Ltd (ASX: PBH) may offer an interesting investment opportunity. It specialises in sports betting, and since listing for $2.00 per share in June its shares have jumped 55% higher to $3.10 as at the time of writing.
Despite the growth prospects on offer, many investors may find it counter to their ethical standpoints to invest in the gambling industry, which is entirely understandable. Those who do wish to invest in gambling companies may need to take this into consideration too, as popular attitudes towards certain industries can impact on the share price of companies operating in those sectors. Some fund and portfolio managers may also be mandated to steer clear of them on ethical grounds which can dampen their potential share price growth.
But despite these theoretical headwinds, Jumbo has managed to post some incredible gains recently, and this could bode well for Pointsbet.
Should you buy Pointsbet shares?
As mentioned previously, instead of selling lottery tickets, Pointsbet is a sports betting agency. But it is unique in that it allows its users to participate in "points betting", where the pay-out of a bet can fluctuate based on the margin of the victory or loss. It gained some publicity in America recently when a user of the site won US$600,000 by wagering US$30,000 per point on an NFL game between the Baltimore Ravens and the Miami Dolphins.
As the above anecdote demonstrates, Pointsbet isn't just interested in targeting the $1 billion Australian market – it is also eyeing a major expansion into what could turn out to be an even more lucrative overseas market in the US.
Many US states are beginning to relax their restrictions on online sports betting and Pointsbet is doing its best to gain an early foothold in the market. According to its FY19 Results Presentation, Pointsbet is already operational in New Jersey and Iowa, and has access to a further 8 US states. It estimates the total market size in these 10 states alone to be US$4.6 billion. If all 50 states legalised online sports betting by FY23, Pointsbet estimates the market revenue will be US$17.3 billion.
Pointsbet is investing heavily in the US: its sales and marketing expenses ballooned in FY19, resulting in an overall loss for the company of $41.9 million. But if its US gamble pays off, the potential pay-out to its shareholders could be massive.
