PointsBet shareholders are in for a rude awakening after a successful capital raising.
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At the time of writing, shares in the sports betting company have tumbled 11.87% to an 8-month low of $9.95.
Why the PointsBet share price is getting slammed
Capital raising discount
PointsBet’s placement and entitlement offer will issue new shares at an 11.4% and 32.8% discount to its last closing price of $11.91 on Wednesday, 28 July.
The size and discount of the capital raising may negatively impact existing shareholders since it results in share dilution.
This means that existing shares reflect a smaller percentage of ownership and are, thus, less valuable.
Independent of the capital raising, PointsBet’s co-founders have elected to sell a portion of their holdings.
Co-founders Nick Fahey and Andrew Fahey will sell 2.0 million shares in aggregate or 15% of their holdings.
In addition, Group CEO Sam Swanell will also be selling 0.9% million shares, also 15% of his holdings.
Another factor impacting the PointsBet share price might be its fourth-quarter update which was announced during its trading halt.
The fourth-quarter update highlighted triple-digit growth across key operating metrics such as betting turnover, active clients and gross win.
However, PointsBet’s explosive growth comes with a hefty price tag, with the company experiencing a net cash outflow of $81.9 million in the fourth quarter.
Third capital raising in two years
PointsBet has proven itself as a cash hungry business, raising approximately $800 million in the last two years.
In October 2019, just five months after the company’s Initial Public Offering, it elected to raise $122.1 million to support marketing and client acquisition, product development and US business development.
By September 2020, PointsBet announced its second capital raising, seeking to raise $303 million to fund its deal with NBCUniversal.
PointsBet share price snapshot
PointsBet has now entered negative year-to-date territory, down 17% in 2021.
Its shares have slumped almost 50% from their all-time high of $18.13 on 16 February.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.