Enthusiast Gaming Holdings Inc.’s balance sheet is “prepped to chase monetization” following the closing of its $55.5-million equity offering, according to Canaccord Genuity analyst Robert Young.
“The equity raise enables EGLX to pare down its high-interest debt further and deploy the remaining proceeds toward acquiring gaming communities and other associated entities in the gaming ecosystem, thereby allowing it to layer on its direct sales and subscription service offerings to drive value,” he said. “A significantly strengthened balance sheet alongside the recent up-list to the TSX and NASDAQ cross-list are signs of steady maturation of the company. We believe Enthusiast’s value proposition for brands seeking Gen Z engagement is attractive given its array of properties that provide a walled garden of sorts to brands to increase ROI on marketing spend.”
After strengthened its liquidity position through the marketed offering, Mr. Young expects Enthusiast to remain “very active” in its M&A activities following recent acquisitions of the Icy Veins fan community and data platform Tabwire LLC. He called the pipeline of potential deals “robust.”
“Enthusiast plans to continue to roll up fan communities and has highlighted opportunities to bolster League of Legends, Minecraft and Roblox assets in particular,” he said. “Management has highlighted strong margins in fan communities given the lack of editorial cost and low competition for assets. EGLX will also pursue other pools of content and media related to video game lifestyle given the ability to layer direct sales and subscriptions to drive incremental value.”
“We see organic growth opportunities arising from expanding recent success in 1) direct ad sales, 2) subscription, 3) content licensing plus new social initiatives accelerated by the acquisition of Tabwire. In addition to current subscription offerings on TSR, the Escapist and Siliconera, EGLX plans to launch additional VIP and premium plans including ProjectGG, a platform-wide subscription offering. If EGLX can convert 0.5 per cent or 1.5 million of its 300 million monthly active users and maintains current $5-10 monthly subscription pricing, we see a path to an 8-figure revenue line from $7-million currently.”
Reaffirming his “buy” rating, Mr. Young cut his target to $11.50 from $12 due to share dilution. The current average is $12.25.
“Given its strong growth prospects, margin expansion potential driven by the emergence of subscription and direct sales, and increased visibility among U.S. investors post its NASDAQ listing, we believe there is room for multiple expansion,” he said.