Gaming’s Big Back-Door Opportunity

In just three years, the gaming industry is projected to be worth upwards of $321 billion. Once the gaming fans are consolidated, it could be worth multiples more thanks to the metaverse, Web 3.0 and the new way in which traditional media and entertainment is consumed, engaged and monetized.

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It’s now all about the fans–the final and most lucrative point of monetization, and this is where it all comes together, with Enthusiast Gaming  (NASDAQ:EGLX) (TSX:EGLX), a pure-play new entrant that recently saw quarterly revenue jump 38% year-over-year. RBC Capital Markets has a Outperform rating and $6.00 CAD target and has revenue expectations that exceed $200M USD for 2023.

For the gaming industry, monetization now means bringing all the fans together in one place and access to that single gaming ‘house’ which means accessibility to everything from a massive base of people for advertising, subscriptions, ticket sales, sponsorships to broad-spectrum e-commerce, in-app purchases, merch, premium content, NFTs, the metaverse and crypto.

Enthusiast Gaming (NASDAQ:EGLX) (TSX:EGLX), has established itself as a dominant vertically-integrated gaming company that buys, builds and monetizes across gaming communities.

A gaming powerhouse that puts this all under one roof could be the industry gold standard for everyone along the chain.

So far, the revenue story indicates that’s exactly how it’s playing out in the early days of this emerging industry transformation. The space is just getting started with new entrants looking for positioning and recognition. FAZE Holdings (NASDAQ:FAZE) made a splash in the space this summer by going public via a SPAC and is currently valued at $1.25 Billion.  

The Revenues Behind the House of ‘Fandom’

Enthusiast’s first-quarter revenues this year came in up over 57% YoY at C$47.2 million. The company’s gross profit was C$13.5 million, up 127% YoY.

Part of this blowout quarter was due to a couple of key acquisitions, including Addicting Games, a massive database of mobile gaming with an NFT play and pay-to-play blockchain-based games, and U.GG, one of the largest online League of Legends communities, one of the largest esports in the world.

But the quarter also saw more views, higher monetization, more direct sales and more subscriptions than anticipated.

Direct sales hit C$5.2 million in the first quarter–up from C$2.2 million in the same quarter last year.

Second-quarter results were even better.  Gross profit was up 91% YoY (C$15.3M) for the integrated gaming entertainment company, and revenue of C$51.1 million–a 38% jump over year-ago revenue.

Subscriptions continue to climb, direct sales (up 111%) continue to expand and recent acquisitions led to higher RPMs across web and video. Gross margin was a very solid 30%, up from 21.6% a year ago.

The Flywheel Model for a Game of Verticals

Enthusiast Gaming CEO Adrian Montgomery has attributed the company’s growth and stellar H1 2022 results to a robust diversified platform of assets, influencers, gaming titles and technology which continue to “unlock new revenue opportunities”, while expanding margins and increasing market share.

This model is the honeytrap for the entire gaming community, from individual gamers and creators to entire gaming communities, esports fans, content creators and event organizers. It’s where everyone along the chain gets to tap into the monetization opportunities across the Millennial and Gen Z hordes.

It positions Enthusiast as the axis upon which a wheel of gaming industry fortune spins. This is where you find more than 100 gaming websites with unique content …

AddictingGames.com 1,500+ games …

Dozens of YouTube and Snapchat channels with over 20 million subscribers …

Over 1,000 channels creating video game-related content …

More than 550 gaming industry influencers across multiple social media channels …

Over 50 gaming events from around the world, both live and virtual …

And Luminosity Gaming, one of the largest esports organizations, competing across multiple game titles, including Call of Duty, Overwatch, Fortnite, Rocket League, Halo, Apex Legends, and more.

Enthusiast has been hitting the acquisition trail hard, scooping up a number of companies to add to its vertically integrated platform.

Two of the biggest new additions are AddictingGames.com and U.GG. With Enthusiast’s experience in recognizing the right pieces of the puzzle to acquire and their ability to integrate, their robust platform has the company accelerating the organic and explosive growth of their platform to match the industry as a leader in the space.

Addicting Games is both a casual gaming site and a game developer with a roster of 1500+ games. Barstool Sports referred to the site as “The Greatest Website of All Time”.

Enthusiast is now home to Luminosity Gaming, the most-watched esports outfit on Twitch and a key creator organization, boasting a 145-million social media following around the world.

This broad-spectrum integration of the gaming industry community has so far given Enthusiast over 300 million monthly viewers and over 250k paying subscribers which has produced nearly C$200 million in revenues over the past 12 months, with a revenue growth rate of nearly 40% in the second quarter.

Infrastructure: The Next Big Leap in Gaming

The COVID-19 pandemic was a huge catalyst for the gaming industry, across multiple segments. The money has been flowing in. But without a change in infrastructure, it will peak.

To date, the biggest money-makers in this industry have been the hardware manufacturers and the publishers of games.

But that is changing because gamers now run this show, and as InvestorPlace points out, “video game enthusiasts tend to see themselves as a cohort, which means that a strong group identity based around a particular hardware or software choice can result in a company underperforming”.

If the gamers are a cohort, they need a home base. And all of these brands, partners and investors are looking for the ultimate way to capitalize on the momentum of this Millennial and Gen Z gaming ‘community’.

The key to Enthusiast is its viewership and ownership of its monetization opportunities that it offers to this audience. This allows for the collection of valuable data across the platform. Enthusiast provides this home base that centralizes fandom and opens it up to all those brands that are looking for ways to monetize this potential on an economic scale. With the addition of Addicting Games, U.GG and another small but powerful Chicago-based development team called Tabstats the monetization applications are widespread.

Enthusiast offers brands and creators access to programmatic and direct sales advertising and subscriptions. It also means brands get to tap into Millennials and Gen Z gaming fans to sell event tickets and set up sponsorships.

From an e-commerce perspective, this house of fandom means access to the 300M+ monthly viewers and subscriber base for in-app and in-game purchases, as well as ‘merch’. Entrants into the house of fandom can also benefit from premium content licensing.

And the biggest new-market element: Access to Web 3.0 and the exploding worlds of NFTs, crypto and the metaverse.

In fact, when Enthusiast announced its newest Web3 game, EV.IO, its NFT drop sold out in only a few hours. On August 19, Enthusiast launched a limited edition drop of 2,500 tokens on the Magic Eden marketplace. Six hours later, they were all gone. Magic Eden has called EV.IO the “most popular game on the Solana blockchain”. And this was Enthusiast’s second successful NFT mint.

Integrated Innovation Pushes Big Money into Gaming

While the traditional gaming industry is trending towards a projected $321 billion already .. what comes next is an infrastructure coup that ties it all to multi-trillion-dollar opportunities. 

The metaverse alone was worth over $27 billion in 2020 and is set to top $824 billion by 2030.

Some analysts believe the NFT world, which is seeing adoption across multiple industries now–from gaming and music to art and digital collections–could top $230 billion by 2030.

It’s this infrastructure aspect that takes the gaming industry to the next level, and exactly why PitchBook data shows that 2021 was a record year for attracting venture capital, private equity and strategic buyers.

It’s no longer just about games. Now, it’s about fan bases and “experiences”, and Enthusiast offers a comprehensive integrated platform that spells widespread monetization. This is front door access to Millennial and Gen Z gamers who buy and consume in groups. It’s an unparalleled point of connection between industry creators and consumers, and revenue growth so far demonstrates a fast track to profitability for Enthusiast Gaming (NASDAQ:EGLX) (TSX:EGLX). 

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