Is PointsBet missing the point?
PointsBet’s negative net win in the second quarter might be passed off as a seasonal fluctuation, but the lack of customer numbers is more telling.
A key phrase that cropped up in PointsBet’s second-quarter earnings call was ‘under-indexing.’
It was uttered by one of the analysts and it wasn’t an issue that CEO Sam Swanell truly attempted to answer.
The analysts were referring to the absolute number of active clients that PointsBet revealed in its results.
Yes, in the three months to December, PointsBet saw a 222% rise in active US players.
But this percentage rise was off a low base of 21,000. Now sitting at 68,100, it is a player base which positions PointsBet as an also-ran in the sports betting stakes.
That figure needs to be put in perspective. According to GeoComply, in the first weekend of operation of sports betting in Michigan and Virginia, over 400,000 new accounts were opened.
To make matters worse for PointsBet, net win in the three months to December came in at minus A$5.1m/$3.9m, or a net win percentage of minus 0.8%.
The company attempted to reassure investors that such a disastrous trading performance was merely an extreme case of bad luck.
Figures for the first 24 days of January showed that it managed a net win margin of 11.5%, or A$13.7/$10.4m over the period.
These wild swings are the result of the low number of active players. Such volatility comes from having a handful of big-spending accounts.
Swanell said that quarterly numbers are “not always representative” of the long-term trends affecting a company. This is true.
But unfortunately, the long-term trend on player numbers suggests the company is falling behind target.
The CEO repeated the company’s aim of hitting a 10% market share in New Jersey and indeed in the fourth quarter it achieved a 13.5% share of handle. In Illinois, meanwhile, in October it snagged over 14% of total handle.
The price for achieving this market share is a marketing budget for the second quarter that topped $18m.
Paying the price
That level of spend makes the 68,000 actives very expensive.
A bit of cross-sell into casino might help. PointsBet will – finally – be adding online gaming in the coming months to its offering, first in Michigan and then in New Jersey.
But what PointsBet will be pinning its hopes on are the various official betting partnerships it has signed. It also has the deal with NBC Sports where is the official betting partner.
PointsBet says it is following its Australia “blueprint”, where the market share strategy is paying off.
But as anyone will point out, Australia is a very different market, not just in terms of the customer but also the product (no in-play for instance).
The competitive picture is also very different and in terms of gaining position it has been given a leg-up by the bringing together of third-placed BetEasy with market leader SportsBet.
Moment of truth
This year will be a hugely important one for sports betting and online gaming as more states open up. The investment needed to succeed is a one-way ratchet and the competition is fierce.
According to the Wedge Index sportsbook weightings given to each brand, PointsBet is a second-tier brand.
That places it behind the market leaders DraftKings, FanDuel, BetMGM and Barstool Sportsbook.
PointsBet faces up to these brands and many others in each of the states it operates. These are brands which we know are piling on active customers at a rate of knots.
To compete, PointsBet will need to continue with substantial percentage increases in actives, but from a higher base.