Pointsbet Holdings (ASX: PBH) (OTCQX: PBTHF) shares have dropped 21% in Australia today. We'd expect much the same reaction on the OTC market in the US when that opens. The cause here is that as has been known for some time Pointsbet desires to get out of its US operations. The competition and thus capital demands are simply too high to be able to continue to try to expand. We've also known for a bit that Fanatics was the likely buyer. What's happened today is that the actual terms have come through. Not as good as some were gambling upon them being.
The background here is that - as we all know - the internet has led to a vast rise in gambling online. One of those major growth areas being sportsbetting and each country seems to have grown its own set of contenders. The big market though is the US. There sports betting is being - gradually - legalised state by state. Given the previous illegality there's a vast untapped market there. Which means there are many competitors trying to establish their own foothold. We know what happens next. Competition leads to high capital demands and also lowered profitability. The truly major companies are doing well, the smaller and scrappier competitors not so much. Pointsbet took the logical decision that they couldn't afford to compete in this US market. Thus sell off that business and retain the Australian and Canadian businesses - the position is stronger in those markets.
Pointsbet Holdings share price from ASX
While that might well be a sensible decision it does depend upon what the terms of the deal are. Which is what is disappointing the market this morning. Those terms are here. Effectively, a $150 million payment.
Well, that's nice, $150 million is, of course, $150 million. But it's the rest of the announcement that really disappoints. For the intention is to return this capital to shareholders, along with most of the rest of the corporate cash. Retain the two smaller markets - which rub along well enough currently. Even that's not a bad idea. But what it does mean is that Pointsbet definitely becomes not a growth stock. Which means losing any premium tied to the possibility of future growth of course.
There was hope that the Fanatics deal would be better than that. Indeed, Pointsbet moved some 50% higher in recent weeks as news leaked out of the possibility of a deal. Folk did indeed think that the deal would be better than it turned out to be.
At less than $1 a share (in AUD) then Pointsbet looks attractive enough. There will be that cash return to shareholders of around that $1 and there will still be the ownership of the rump of the business. But as an exciting stock with a stellar future? Unlikely now the bulk of the business is sold off.