Seeing it poised to thrive in “a still under-appreciated broader gaming ecosystem,” RBC Dominion Securities analyst Drew McReynolds initiated coverage of Enthusiast Gaming Holdings Inc. (
) with an “outperform” rating on Friday, calling it “a unique gaming media pure-play that can garner a scarcity premium.”
“Despite explosive growth in video gaming, we believe the ‘broader’ gaming ecosystem including gaming video content, dedicated news and fan websites, esports and live events, is still under-appreciated by many investors in terms of its size, influence and growth potential,” he said. “We believe secular growth in the video game industry should translate directly into a growing broader ecosystem for gaming media companies. We also believe this broader gaming ecosystem should be a structural winner as our mid-2020s content inflection period approaches.”
Mr. McReynolds believes the Toronto-based company’s “transition to monetization” is likely to both improve earnings visibility and act as a positive catalyst for the stock.
“Enthusiast Gaming is undergoing a transition from ‘proof of concept’ under a first-mover aggregation strategy, to one of monetization,” he said. “With a reach of 300-million-plus gamers, we believe Enthusiast Gaming has now established itself as a leading gaming media platform with scaled access to a highly coveted Gen Z and Millennial audience. As a result, we believe the company is very well positioned to now fully exploit monetization opportunities by instituting a multi-revenue stream playbook with a near-term focus on direct advertising sales, subscription revenues and content licensing revenues. We forecast an increase in revenues from $159-million in 2021 (up 24 per cent year-over-year on a proforma basis) to $337-million by 2025 (21-per-cent compound annual growth rate).”
Seeing its current trading level as “an attractive and timely entry point,” Mr. McReynolds set a $9 target for Enthusiast Gaming shares. The average is $11.06.
“Within the Canadian public market, we believe there is relatively limited opportunity forinvestorsto gain pure-play exposure to the global gaming ecosystem. With greater ecosystem appreciation and improving earnings visibility, we believe Enthusiast Gaming can garner a growing scarcity premium as a gaming media pure-play,” he said.