BNS Following its release of in-line fourth-quarter results after the bell on Monday, Scotia Capital analyst Jeff Fan thinks the outlook Enthusiast Gaming Holdings Inc. in fiscal 2022 remains “robust.”
“We expect revenue growth momentum to remain strong in 2022 at 30-per-cent year-over-year growth (22-per-cent organic),” he said. “Excluding acquisition in Q4/21 and the impact of foreign currency, revenue grew by 25 per cent. Management expects this momentum will continue in 2022. Adding $14-million from acquisitions, we estimate total revenue growth of 30 per cent. The key organic media and content revenue drivers are higher direct sales, higher revenue/impressions (RPM) at Omnia, more partner sites and higher web RPM. The higher subscription revenue is higher paid subscribers and M&A. We estimate direct sales will increase from $22-million to $42-million in 2022.
“We expect higher gross margin in 2022 driven by growth from higher-margin revenue. In 2021, proforma revenue grew $40-million, of which 54 per cent was from higher-margin revenue streams such as direct sales ($18-million) and subscription revenue ($3-million). This led to gross profit flow-through of 38 per cent (incremental gross profit relative to incremental revenue year-over-year), which was well above EGLX’s total gross margin of 23 per cent. We estimate 50 per cent of the revenue growth in 2022 will come from these two revenue sources and result in gross margin of greater than 25 per cent. Over the long-term, we forecast gross margin of 50 per cent and EBITDA margin of 20 per cent.”
Mr. Fan now thinks next important milestone for the integrated gaming entertainment company is to achieve operating leverage at the EBITDA level. He does not expect it to reach the breakeven level in 2022, but now sees the potential to reach that milestone in 2023, noting: “Management has demonstrated a good track record at the gross margin level.”
Maintaining a “sector outperform” rating, he reduced his target to $8 from $8.25. The average is $8.48.