Introducing Esports Entertainment Group ($GMBL)

In a quest to find smaller cap, high growth companies, I have come across the following business that I’d like to bring to the board that has just reported their June 30, 2021 fiscal 2021 year end financial results.

Introducing Esports Entertainment Group ($GMBL):
Esports is the competitive playing of video games by amateur and professional teams as a spectator sport. Esports typically takes the form of organized, multiplayer video games that include genre’s such as real-time strategy, fighting, first-person shooter and multiplayer online battle arena games. Most major professional esports events and a wide range of amateur esports events are broadcast live via streaming services including twitch.tv and youtube.com. EEG is an esports focused iGaming and entertainment company with a global footprint. EEG’s strategy is to build and acquire betting and related platforms, and lever them into the rapidly growing esports vertical. We operate the business in two verticals, EEG iGaming and EEG Games.

Highlights:

  1. We’re getting in close to ground 0. Revenue growth, from 0 in fiscal 2020 to $16.8MM in F21.
    a. Quarterly revenue growth → Q1 0.2, Q2 2.4, Q3 5.4, Q4 8.8 (+63% QoQ sequentially)
  2. Strong revenue growth guidance for 2022: 100-105MM, +510% YoY
  3. Very low market cap: ~150MM, A tremendous runway
  4. Gross margins: 57% in Q3 → 59% in Q4

Risks:

  1. Growth has been through acquisition - it has been difficult to ascertain what organic growth there will be going forward.
  2. Regulatory challenges with the gambling industry.

Earnings call notes:

  1. In addition, that strong revenue growth, we continue to make significant strides in our goal to build the world’s best Esports Entertainment online gambling company.
  2. Starting with our iGaming, our strategy is to build the best-in-class eSports betting platform before casino sportsbook functionality.
  3. Much of our current marketing today has been spent in Latin America, which is the third largest eSports market globally, growing more than 17% annually. So far, we’ve signed up marketing agreements with Infamous Gaming, Peru’s second largest eSports organization, Movistar Liga Pro gaming league, SG Esports, a Brazilian eSports organization.
  4. Moving to our North American efforts, which we expect to be a big growth area for Vie and for the company. I’d like to give you an update, which is a question that comes up frequently to our New Jersey license application. We’re now in the final stages of what has been a long process.
  5. Our software has been submitted to the Digilab [ph], which is currently in the ethical audit process.
  6. Since May, we signed exclusive agreements with the Cleveland Cavaliers, the LA Football Club, the LA Chargers, the New York Rangers, Indianapolis Colts, and the current Super Bowl champions, the Tampa Bay Buccaneers. When we initially started signing these agreements, our plan was to monetize the relationships by charging players to play, in the tournaments we’re running on behalf of the teams. Other revenues will be generated from sponsorship fees for brands wishing to target the highly coveted 18 to 35 gamer demographic. Additionally we can also monetize through broadcasting our tournaments on Twitch and ESTD, which we signed a partnership with in late August.
  7. From being pre revenue in 2020, we generated $16.8 million of revenues in full year fiscal 2021. This was predominantly driven by 11-months of revenue from Argyll, and four months of revenue from Lucky Dino.
  8. Taking a breather from acquisitions.

Acquisitions:

  1. BetHard Group (announced May 2021): 31MM annual revenue, strategically important gaming licence in Sweden, acquired for 19.5MM + 12% gaming revenue share for 2 years
  2. Helix eSports and ggCircuit (announced Oct 2020): ggCircuit is a B2B software company that provides cloud-based management for LAN centers, a tournament platform, and integrated wallet/point-of-sale solutions for enterprise customers. ggCircuit has over 1,000 connected locations and has worked with enterprises such as GameStop, Dell, Best Buy and Lenovo as well as universities such as Ohio State, Syracuse and North Carolina. Their ggLeap product has over 60 million hours of usage by over two million unique gamers on tens of thousands of public gaming screens inside centers worldwide. Helix eSports owns five esports centers, including two of the five largest centers in the US, where they deliver world-class customer service, esports programming and gaming infrastructure. Helix offers a variety of experiences including casual play, competitive tournaments, STEM programming, high school leagues, large groups and esports bootcamps all with the goal of leveling the playing field in esports and providing equitable access to technology. Their centers have become the destination for social and competitive gamers alike with monthly tournaments and unique experiences. Also includes Genji analytics an esports-proven, publisher-trusted analytics provider. The acquisition also includes LANduel, Helix’s proprietary player-vs-player wagering platform, built in Unity, that allows for skill-based wagering on third-party video games. Deal valued at $43MM.
    ? Adds two million unique gamers to platform
    ? Adds over 1000 connected locations
    ? Adds state-of-the-art analytics platform
    ? Helix eSports owns two of the five largest esports entertainment centers in the US
    ? Adds safe and regulated player-vs-player wagering opportunities with Helix’s LANduel platform, which is in a pilot program with the New Jersey Department of Gaming Enforcement
  3. FLIP (announced Aug 2020): FLIP Sports is a dynamic and entrepreneurial mobile games studio innovating how fans enjoy and engage with live sports. Through its proprietary in-play, peer-to-peer technology, FLIP provides a unique multi-platform second-screen experience within an entertaining, social, and competitive gaming environment for fun-seeking sports and wagering enthusiasts who enjoy watching live sports and events.
  4. EGL (announced Dec 2020): EGL is a B2B-centric provider of live and online events and tournaments where gamers can compete and enjoy a wide range of content relating to esports and video games on a proprietary technology platform with over 350K registered gamers. Services include full turnkey esports events, live broadcast production, game launches, and online branded tournaments.
  5. Lucky Dino (announced Dec 2020): Online casino operator. Lucky Dino’s assets will give us a substantial foothold in multiple new jurisdictions across Europe and Scandinavia where esports are extremely popular, and with Lucky Dino’s 30K monthly active casino players we will have tremendous cross-selling opportunities with our SportNation and Vie.gg betting platforms. 21MM in annual revenue. Deal cost 30MM.
  6. Argyll (closed July 2020): Argyll has established itself as a fast growing and innovative gaming company within the UK and Irish market leveraging its expertise in marketing, technology, risk management, and regulation to offer its customers an entertaining, safe and secure online gaming experience, an award winning rewards program and access to exclusive sports and gaming content. Added 12MM revenue, 100k users.

Reference material:
4th Quarter Results: https://esportsentertainmentgroup.com/esports-entertainment-…
10-k: https://www.sec.gov/Archives/edgar/data/1451448/000149315221…
Earnings call transcript: https://seekingalpha.com/article/4459779-esports-entertainme…

Daws (long GMBL - small starter position to keep my eye on this company)

16 Likes

-A Micro Cap (149M) that is growing by acquisition, sounds incredibly risky.
-When you add in the regulatory risk, it sounds much, much riskier
-The Video game industry is highly volatile depending on which titles hit and miss so I generally avoid it altogether.
-Bottom line, the stock is way toooo speculative
-It’s nothing like a SaaS type Category crusher with high margins, reliable subscription revenue, high DBNRR, and top rated, proven management. This type of stock would typically be at least a mid-cap in size due it’s large and expanding TAM and sticky product.

14 Likes