The Jumbo Interactive Ltd (ASX: JIN) share price is down 20% this month, but rose 2.34% in yesterday's trade. After the company delivered a strong FY19 result with an ambitious goal of achieving $1 billion in ticket sales through the Jumbo platform by 2020, is it time to load up Jumbo shares?
FY19 results
Jumbo delivered a strong FY19 performance following strong customer growth and engagement, supported by large jackpot activity, resulting in record financial results. The company saw active customer momentum continue, up 74% to 761,863 customers, while 444,004 new accounts were created in FY19, up 107% on FY18.
The new Powerball format was a huge success following 2 $100 million Powerball jackpots in August 2018 and January 2019. This has driven the number of large jackpots to 49 in FY19, up from 32 in FY18. These large jackpots have been key in generating further engagement, transaction and revenue. As a result, Jumbo reported that its revenue had increased by 64% while net profit and EBITDA soared 124% and 107%, respectively.
There were 2 key factors that stood out in Jumbo's FY19 report. Firstly, Jumbo has developed its own software as a service (SaaS) that will provide lottery operators with access to its proven lottery software to enable an online presence and drive growth. The company currently has two clients, Mater Lottery and Endeavour Lottery, who are onboard with multi-year SaaS agreements. Secondly, Jumbo has come out with an aspirational goal of reaching $1 billion in ticket sales from its ticket reseller business and SaaS business by 2022. This growth would be achieved by gaining further traction with its SaaS product and potentially entering the US and UK online lottery markets.
Entry into the UK
On 12 November, Jumbo announced that it had entered into a conditional share purchase agreement to acquire lottery manager Gatherwell Limited. This acquisition is subject to the UK Gambling Commission approving the Gatherwell change in control.
The rationale behind a UK acquisition is to accelerate Jumbo's expansion of its SaaS business in the UK. Gatherwell is a fully licensed external lottery manager with a unique position focusing on a turnkey digital solution to local authorities. An external lottery manager is a person or organisation that makes arrangements for the lottery on behalf of a local authority.
There are 168,168 registered charities in England and Wales with total revenue of ₤77.404 billion as at 30 September 2018 derived from donations, fundraising activities and lotteries. The immediate addressable market is those charities which generate revenue through lottery activities is an estimated at ₤675 as at March 2018. The UK acquisition represents an important step in building Jumbo's SaaS business segment and in achieving its vision of $1 billion of ticket sales through the Jumbo platform by 2022.
Foolish takeaway
Jumbo delivered an excellent FY19 result with a strong outlook. The company should continue to build earnings momentum in Australia, while capitalising on further growth opportunities through its SaaS business and entries into new geographies.
One of the key challenges for Jumbo is its valuation. It currently trades at a price-to-earnings ratio of approximately 46. The expectations are high, but should the company achieve its goal of $1 billion in ticket sales, then it should generate favourable shareholder value in the medium- to long-term.
