A recent study has revealed that Australia's online gambling spend increased by 67% in the first week of April. The figures were based on a weekly sample of transactions of 250,000 Australian consumers.
Could these S&P/ASX 200 Index (ASX: XJO) shares be positioned to benefit from this alarming change in consumer spending behaviour?
Tabcorp Holdings Limited (ASX: TAH)
Despite climbing higher in recent weeks, the Tabcorp share price has slumped more than 30% in 2020, driven by its underwhelming 1H20 financial performance. The company has experienced challenging conditions for its wagering, media and gaming services that contribute approximately 46% of revenues, while its lotteries and Keno services did the heavy lifting to push the group's first-half earnings growth into positive territory.
The lotteries and Keno business performance was driven by a strategic Powerball game change and the acceleration of digital and marketing investments. This segment delivered a 12.4% increase in revenue and 16% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) in 1H20. Its digital platform is growing strongly and now represents 26.7% of turnover.
While its digital segment may benefit from the coronavirus, its contribution to the group's overall revenue is still small. On the other hand, revenue from its Australian licensed venues, TAB agencies and on-course outlets accounted for more than a quarter of Tabcorp's 1H20 revenues. These revenue streams will be adversely impacted given the shutdown of non-essential businesses and social distancing rules, as well as the suspension of most major sports.
Tabcorp is now seeking to mitigate the impact of COVID-19 by ramping down its operating and capital expenditure. Ultimately, the business model still has a significant retail dependency and I believe current challenges will likely offset any benefits.
Jumbo Interactive Ltd (ASX: JIN)
While digital lotteries may represent a small segment of Tabcorp's business, it is the complete opposite for Jumbo – digital lotteries is almost its entire business. Jumbo's flagship product is the Oz Lotteries website and mobile app.
Jumbo provided a COVID-19 market update on 1 April 2020, stating: "Prior to the onset of the COVID-19 crisis, almost 75% of all Australian lottery tickets were sold via retail channels. With the expected impact that social restrictions will have on retail channels, the company is well placed for an increase in online lottery demand".
Jumbo currently estimates that FY20 revenue will increase between 5% to 7% on FY19, while net profit after tax (NPAT) is forecasted to decline between 4% to 7.5%.
The Jumbo share price has fallen more than 50% since hitting an all-time high in October last year. Given its current valuation and potential earnings tailwinds moving forward, now may be an opportune time to invest in a recovering growth story.
