US foray for betting group PointsBet, which has Shaquille O’Neal as its local brand ambassador, yet to pay off

PointsBet is the seventh-biggest betting player in the US, but its high stakes gamble is yet to pay off, as the company’s losses balloon.

Online gambling company PointsBet’s losses have ballooned to $178m for the half year, as management continued to pour money into trying to make its major investment in the US profitable.

That’s up 22 per cent from a net loss of $146.4m over the same six-month period a year earlier.

PointsBet on Tuesday reported a 28 per cent rise in revenue to $178.1m for the six months to December 31 with turnover soaring 40 per cent to $3.2bn. But normalised earnings before interest, tax, depreciation and amortisation widened by 25 per cent to $163.2m. Cashflow during the period was 31 per cent lower at $123.2m.

The horse racing and sports betting firm is juggling increased competition in Australia, where it is a profitable top-five operator; and a continued money drain in the US, where the seventh-biggest player is yet to turn a profit in a market still in its infancy.

Shares in PointsBet slumped more than 20 per cent after announcing its results on the last day of earnings season, a day that traditionally attracts the underperformers.

“We think we’ve turned the corner in terms of reducing our losses in the US,” said PointsBet chief executive Sam Swanell, who defended the company’s decision to take on this market.

“For our sector, if you are not in North America, you are not going to be in growth in global gaming because of the sheer size of the opportunity there.”

In the US, PointsBet is competing against the likes of casino giant Caesars Entertainment to attract US online betting dollars. It’s only been since 2018 that US states have been able to determine whether to allow online gambling, and so far the Australian firm is in 14 US states.

“It’s taken some investment to compete with the MGMs and the Caesars of the world, but the results show we have reached a turning point,” said Mr Swanell.

Some analysts have predicted the company will need to raise cash to keep funding its US business.

Mr Swanell acknowledged the rumour, but wouldn’t comment on if and when it would need to sell shares.

“We have $321m in the bank,” said Mr Swanell. “The market expects we will do a capital raise on the path to profitability, (but) we’ve got plenty there to fulfil the medium term road map.”

Investors and rival operators talking on background said they were more interested in whether PointsBet is still a takeover target after it confirmed talks two months ago with NTD, the owner of Australian wagering operator Betr,

Betr is run by digital wagering pioneer Matthew Tripp and chief executive Andrew Menz. It is backed by an ownership group including News Corp Australia – publisher of The Australian – and Las Vegas-based Tekkorp Capital, owned by Australian wagering entrepreneur Matt Davey.

There is ongoing consolidation within the global $100bn-plus global wagering industry as players position themselves to become dominant forces in the online sector and capture the attention, and wallets, of gamblers.

“Most people assume that we are more likely to be taken over,” admits Mr Stanwell. “There is a lot of third party interest in our company. We believe we are undervalued from a sum of the parts perspective.”

It’s a view shared by high profile stockbroker Angus Aitken who calls PointsBet “great buying” and predicts it can be a $3-4 stock “in time.”

“At the current AUD of 67c and given the growth outlook for the USA and PointsBet being the seventh-largest player we feel at the market capitalisation of US$260m with US$215m of cash, (it) is stupidly undervalued here,” Mr Aitkin said in a note.

Mr Aitken believes PointsBet shares have been under pressure because of short selling activity.

“The peak of short interest seems to correlate with the bottom of a stock price 99 per cent of the time in my view,” Mr Aitkin wrote. “Think back to people jumping on the corpses of companies ranging from JB Hi Fi, Fortescue, Harvey Norman and dozens of others.”

PointsBet said it expected EBITDA to improve in the current half, to a loss in the range of $77-$82m.

Mr Swanwell said that revenue growth in the US – where PointsBet’s app is sometimes the third most popular -has been increasing and costs declining.

In Australia, where the firm was using US basketball legend Shaquille O’Neal as its brand ambassador, sports betting is driving growth.

“Sports is continuing to grow and racing has stagnated,” said Mr Swanwell.

As to why that would be, Mr Swanwell said that from a bookmaking perspective, there is more innovation at the moment with player props and same game innovation.