The PointsBet Holdings Ltd (ASX: PBH) share price dabbled between positive and negative territory in early March. Then it tumbled amid concerns regarding online sports betting legalisation in New York.
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The PointsBet share price fell 17% in March
New York legalisation concerns
New York is one of the biggest revenue opportunities for sports betting in the United States. PointsBet previously estimated that New York could have a market size of approximately US$1.35 billion by calendar year 2023.
This greatly overshadows large sports betting states such as Illinois and Ohio that have a respective US$784 million and US$599 million addressable market.
Last week, a research note from Deutsche Bank highlighted concerns over the upcoming vote for online sports betting legalisation in New York. The note said that:
Comments from NY politicians, as reported by affiliate media, appear far more pessimistic than those of several weeks ago around the prospects of NY legalising online sports betting in this session.
While New York has legalised retail sports betting, attention has turned to the online sports betting scene that has surged during COVID-19.
US growth needs to go full steam ahead
The PointsBet share price represents a relatively expensive $2.2 billion loss-making company trading at approximately 27 times FY20 revenue. The company's losses are accelerating as it focuses on marketing and promotional activities to drive market share and customer acquisition in the land grab opportunity in the US.
In the first half of 2021, PointsBet reported losses of $85.6 million, more than double the $41.5 million loss for the entirety of FY20. Given the richly valued nature of PointsBet shares, the pressure is on the company to successfully execute its growth strategy in the US to maintain confidence and deliver shareholder value.
The almost 10% drop on 30 March is likely in response to uncertainty in New York and the potential revenue that PointsBet might miss out on.
Brokers still see upside for the PointsBet share price
On 31 March, right after Deutsche's New York announcement, Goldman Sachs initiated coverage on PointsBet shares with a buy rating and $17.50 target price. The broker shrugged off New York concerns and explained that "we see PBH as well-placed to carve out a niche share of the burgeoning US sports betting market, which we forecast to reach US$39 billion at maturity, implying a robust 40% CAGR out to 2033."
The broker believes that PointsBet's growth will be underpinned by its 20-year partnership with Penn National Gaming (NASDAQ: PENN) which translates to market access into a number of states and its five-year exclusive media partnership with NBCUniversal, the largest sports broadcaster in the US.
