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viewEsports Entertainment Group, Inc.

Esports Entertainment expanding fast and leading the next generation of esports betting

Snapshot

The Malta-based 18+ gaming company is growing in leaps and bounds as esports goes mainstream

gamer

Quick facts: Esports Entertainment Group, Inc.

Price: 16.55 USD

NASDAQ:GMBL
Market: NASDAQ
Market Cap: $286.83 m
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  • Allows esports fans to bet on their favorite esports teams and events
  • Takes a percentage of each wager on the platform but otherwise has no interest in the outcome
  • Based in Malta and governed by the US Securities and Exchange Commission, as well as other regulators in multiple jurisdictions

What Esports Entertainment does:

Esports Entertainment Group (NASDAQ:GMBL) is a licensed online gambling company focused on the growing world of professional video gaming - and the only esports company currently listed on NASDAQ.

Much like traditional sports gamblers betting on their favorite teams, Esports Entertainment's proprietary Player-to-Player (P2P) wagering system allows e-sports fans and enthusiasts to bet against one another in support of their favorite ePremiere League (ePL) teams. The ePL is a partnership between Electronic Arts and the English Premier League, which is the most-watched sports league in the world. 

With an estimated 350 million game enthusiasts worldwide, wagering in the space is already in the billions of dollars globally, Esports Entertainment takes a percentage of each wager on the platform but otherwise has no interest in the outcome.

The target market skews younger: the average esports enthusiasts are men in their twenties, with many in their prime between the ages of 18 to 28.

The market is growing. Many US universities have set up esports teams and offer scholarships to players. Additionally, esports will have a role in the Paris 2024 Olympics, according to reporting from Inside the Games.

This is further supported by the 190 esports teams around the world that have already become affiliate partners of the company for the purpose of generating income from their fans' wagering. No e-sports team had previously signed with any wagering site.

The company also operates Vie.gg, a proprietary betting exchange platform that allows fans to wager on a variety of esports games, including Call of Duty, Overwatch, League of Legends and PlayerUnknown's Battlegrounds.

Esports Entertainment has also been expanding fast. In July 2020 it completed the purchase of Argyll Entertainment, a gaming company with an award-winning rewards program and exclusive sports and gaming content via its SportNation brand. In January 2021, it completed the purchase of Esports Gaming League (EGL), a UK-based business-to-business (B2B) centric provider of live and online events and tournaments, with more than 350,000 registered gamers. 

It is also in the process of acquiring Helix eSports, which owns five esports centers, including two of the five largest centers in the US; and ggCircuit, 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. And in December 2020 it revealed plans to acquire online casino operator Lucky Dino Gaming.

How is it doing:

Esports Entertainment has made a busy start to 2021 picking up big new sports signing, reporting its first revenues thanks to recent acquisitions, and launching a fundraiser.

On February 11, the company announced that it had signed a multi-year partnership with the Baltimore Ravens to be the NFL franchise's esports tournament provider.  As part of the agreement, the company will operate bi-annual esports tournaments for the Ravens utilizing its Esports Gaming League (EGL) platform. The Ravens are one of five NFL franchises to win multiple Super Bowls since the turn of the century.

In December last year, the company had announced a landmark multi-year partnership with the Philadelphia Eagles, making it the first esports tournament provider for an NFL club. And in November, the firm's Esports Gaming League business revealed that it had signed an agreement with Arsenal Football Club to manage its Pro Evolution Soccer roster for the eFootball League. 

Earlier in February, Esports Entertainment announced that it had submitted its gaming license application with the New Jersey Division of Gaming Enforcement (NJDGE). The company noted that New Jersey has quickly become a US leader in legal sports betting, setting new wager records each month since August, with the state recording nearly $1 billion in total sports bets in December. 

And at the end of January, the company revealed that its VIE.bet and SportNation.com brands have now been approved to market and operate in more than 150 jurisdictions around the world through the company’s Gaming Service License issued by the Malta Gaming Authority last year.

The company's proprietary VIE.bet offering is the only esports-focused wagering platform operating under Tier 1 gaming licenses, and, in addition to Malta, the group holds gaming licenses in the UK and Ireland with a pending license in New Jersey expected in the first quarter of 2021 through a partnership with NYSE-listed Bally's Corp.

Looking at it financials, on February 16, Esports Entertainment reported second-quarter revenue for 2021 of $2.4 million, marking its initial quarter of revenue generation, which the company attributed primarily to the acquisition of Argyll Entertainment.

Esports Entertainment also raised its fiscal 2021 revenue guidance to $18 million, up from $13 million, reflecting the future addition of Lucky Dino, Helix Esports and ggCircuit to its core Argyll and VIE platforms. On a proforma basis, including the acquisitions of Helix Esports and ggCircuit, the company also expects to report $70 million in revenue in fiscal 2022.

 It finalized the binding agreement for its previously-announced Helix eSports and ggCircuit acquisition on January 25, noting then that the $43 million transaction, expected to close in 2Q 2021, will comprise 50% cash and 50% GMBL shares, which will be priced upon the closing of the transaction

The company said it had cash and equivalents totaling $7.6 million as of December 31, 2020, and it has made moves to bolster that cash position since the year-end. On February 12, the company said it had entered into securities purchase agreements with certain institutional investors for the sale of 2,000,000 shares of its common stock at a price of $15.00 each for aggregate gross proceeds of $30 million, with the fund-raising a registered direct offering priced at-the-market under NASDAQ rules.

Inflection points:

  • Completing the acquisition of Lucky Dino, Helix Esports and ggCircuit
  • Forging more partnerships with prominent professional sports organizations and franchises
  • Securing 5% of the $3.6 billion esports wagering market with its VIE.gg platform — and generating $180 million in revenue in the process

What the broker says:

On February 17, analysts at Noble Capital raised their price target for Esports Entertainment to $20 from $11 per share and repeated an 'Outperform' rating on the stock following the release of  the group's 2Q numbers.

The analysts said the target hike reflected the favorable environment for funding the group's recently announced acquisitions and without the prospect of significant debt.

They noted that near current levels, Esports Entertainment's shares trade at 4.9 times enterprise value based on their fiscal 2022 revenue estimate, or roughly 50% below average M&A transaction multiples. The new price target reflects a target multiple 6.5 times, which is more in line with its peer group multiples.

Looking at the 2Q numbers, the Noble analysts said that total revenues of $2.36 million were in line with their estimate of $2.2 million, while the group's adjusted EBITDA loss of $3.4 million was slightly better than their $3.8 million loss estimate. They pointed out that the quarter "had a lot of noise with a significant amount of professional fees related to recent acquisitions and funding".  

The analysts highlighted that the group increased its full-year fiscal 2021 revenue guidance to $18 million to $13 million. They said: "Notably, we believe that there is upside surprise potential to that guidance. We are maintaining our fiscal 2022 revenue estimate of $70 million, which is in line with management's guidance."

The analysts pointed out that Esports Entertainment shares have risen by 250% since lows achieved in November 2020. They concluded: "The increase in shares price has substantially increased the company's financial flexibility to complete acquisitions with fewer shares than we originally expected. In addition, the rise in the share price improves the company's ability to use its equity for future acquisitions." 

What the boss says:

In the February 15, 2Q results statement, Esports Entertainment CEO Grant Johnson said: “The foundation we have built is primed to generate rapid growth in the quarters ahead. Revenue growth, driven by our Argyll Entertainment acquisition, accelerated throughout the fiscal second quarter.”

He added: “We believe the diversified esports and online gambling company we are building is ideally positioned to capitalize on these trends, providing investors broad exposure to the rise of competitive gaming and the legalization of online gambling in the US. Looking ahead, we are building on our momentum, and with today's capital raise of $30 million, we have the resources to further accelerate the monetization of our robust three pillar strategy."

Contact the author at jon.hopkins@proactiveinvestors.com

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on 26/10/20

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