The PointsBet Holdings Ltd (ASX: PBH) share price tumbled 20% on Wednesday after the successful completion of its $303m capital raising. The capital raising will be used to fuel its exclusive NBCUniversal partnership which will provide the company with significant exposure to the US sports betting scene. Could yesterday's weakness in the PointsBet share price be an opportunity to buy?
NBCUniversal Media Partnership
PointsBet entered into a 5-year exclusive media partnership with NBCUniversal. This partnership will push the PointsBet brand and product in front of the largest sports audience of any US media with exclusive television and digital sports betting integrations. PointsBet has committed a total market spend of US$393m in progressively increasing amounts over the 5-year media partnership together with incentives payable to NBC for customer referrals. Subject to shareholder approval, NBC will be issued shares representing 4.9% on issue.
From one perspective, the deal is very expensive and may not translate into profitability for PointsBet at the end of the five-year deal. However, the US sports betting market is an eyewatering revenue opportunity. Morgan Stanley and JP Morgan have both estimated that the potential combined online and retail sports betting market to be worth US$12bn by 2025. As it stands, this could be a land grab opportunity for market share, brand recognition and active customers.
FY20 Performance
PointsBet delivered a fair FY20 performance considering the broad COVID-19 related challenges. Its betting turnover increased 103% to $1,152bn, net wins increased 191% to $82m and active customers increased 39% to 111,400. Its Australian performance is solid with positive EBITDA for FY20 after only 3 years of operation. Overseas, the company continues to expand across the US with the launch of retail and online operations in Iowa, online operations in Indiana and licenses approved for Illinois and Colorado. It also received market access to seven additional states subject to license approval.
Is it a buy?
The capital raising was issued at a 48.9% discount based on its A$13.69 closing price on Wednesday, 2 September. While $303m also represents a significant percentage of its existing market capitalisation. The potential dilution and potential profit taking, combined with the current volatile US market, tech sell-off and US election is likely to increase volatility in the near term. I believe investors should wait on the side lines and wait for a better timing opportunity to enter the PointsBet share price.
