The share price of PointsBet Holdings Ltd (ASX: PBH) is set for its worst session since the March COVID-driven collapse last year.
At the time of writing, shares in the sports betting company have stumbled off a cliff, falling 17.3% to $8.73. This now places the share price 50% below its 52-week high set in February.
It appears the market is not satisfied with the first-quarter trading update posted by PointsBet earlier today. In response, more than 7.6 million shares have been traded as the PointsBet share price bleeds out.
Considering all the commotion, let's dig into what could be weighing on investors' minds today.
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Competitive landscape drains cash
As my colleague, Kerry, covered earlier today, growth metrics for PointsBet remained strong in the first quarter of FY22. Namely, turnover increased 42% year on year to $979.9 million with a gross win margin of 11.9%. This continued double-digit growth for the overall company is significant. However, the eyebrows begin to raise at the question: how much does this growth cost?
As stated in its presentation, the fast-growing United States operations remain highly competitive. Although PointsBet managed to grow cash-active clients by 367% year on year to 185,880 in the United States, the fierce competition between multiple sports betting companies vying for a spot is heating up.
To defend its current markets while also branching into new ones, PointsBet has needed to push substantial amounts of money towards sales and marketing. In the first quarter, more than $46 million was spent on marketing, being the company's largest operational expense. This considerable figure might be a contributing factor to the sinking PointsBet share price on Thursday.
While it is to be expected for a high-growth business looking to gain market share, investors might be concerned about how effective this cash splashing strategy will be in the long term. PointsBet is up against stiff competition in the form of large US companies such as DraftKings Inc (NASDAQ: DKNG), at a market capitalisation of US$38.2 billion.
In the last quarter alone, DraftKings spent US$171 million on sales and marketing — nearly five times as much as PointsBet's budget.
PointsBet share price recently
Before today's fall from grace, the ASX-listed PointsBet share price had been floating between $9.50 and $10.50 for the last month or so. During this time, shareholders have been left guessing as no price-sensitive announcements came forward.
Despite some positive factors, it appears the market has focused on other facets of the latest quarterly update. As a result, shareholders are now witnessing a price point that has not been seen in 14 months.
