Higher Margin Wagering Shift And Product Adoption Will Drive Stronger Long Term Earnings

Catalysts

About Betr Entertainment

Betr Entertainment operates a digital sports and racing wagering platform focused on higher engagement, higher margin products in the Australian market.

What are the underlying business or industry changes driving this perspective?

• Ongoing customer shift toward higher margin multis and exotics, supported by Betr’s proprietary platform and Same Game Multi penetration, is expected to structurally lift net win margins and expand gross profit and earnings over time.
• Brand relaunch with THE GOAT and a more rational media market, combined with targeted, data driven acquisition, is likely to reduce customer acquisition cost per active and support faster revenue growth with improving net margins.
• Rapid adoption of product innovations such as the live tracker and integrated Sky Racing streaming is deepening engagement and bet frequency, which should translate into higher turnover per active and stronger net win per customer.
• Scale benefits from integrating acquired customer bases and the strategic PointsBet stake, with potential future synergy realization, can drive operating leverage, lowering unit costs and supporting margin expansion and earnings growth.
• Disciplined capital deployment into technology and marketing, supported by a still strong cash position despite buybacks, positions the company to capture share in a flat but rational market, accelerating revenue while stabilizing cash flows and profitability.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Betr Entertainment's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -11.2% today to 5.1% in 3 years time.
• Analysts expect earnings to reach A$9.4 million (and earnings per share of A$0.01) by about December 2028, up from A$-14.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 75.4x on those 2028 earnings, up from -14.7x today. This future PE is greater than the current PE for the AU Hospitality industry at 32.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.24%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Bet outcomes have recently skewed in favor of customers across NRL and key racing carnivals, and if this pattern persists or becomes more frequent over the long term, it could structurally compress net win margin and reduce earnings growth potential.
• The strategy is heavily reliant on sustained customer appetite for higher margin multis and exotics, but any regulatory or social backlash against these products, or a shift in consumer preferences toward lower risk singles, could slow turnover growth and weaken revenue expansion over time.
• Betr is materially increasing marketing and media spend during major sporting and racing events in what is described as a rational but low growth market. If incremental customer acquisition and engagement do not sufficiently offset this long term investment, operating leverage may disappoint and net margins may remain subdued.
• The business is pursuing aggressive inorganic growth including a substantial 27.7% stake in PointsBet and ongoing M&A ambitions. If integration synergies do not materialize or additional deals require more capital in a flat industry, this could strain the balance sheet and dilute future earnings.
• Key product differentiation such as the live tracker and Sky Racing integration may be copied by larger Tier 1 competitors that already enjoy scale advantages. This could erode Betr’s early mover edge and limit its ability to continue outpacing a near flat market in turnover, which would weigh on long term revenue and margin expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$0.45 for Betr Entertainment based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$185.7 million, earnings will come to A$9.4 million, and it would be trading on a PE ratio of 75.4x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of A$0.21, the analyst price target of A$0.45 is 52.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.