We’ve done a deep dive into the Top 5 Canada-listed esports companies and have made New Wave Esports Corp. (CSE:NWES) our #1 pick due to the Company’s depth and breadth across all revenue streams in the industry
SmallCapPower | January 24, 2020: There is no doubt that esports is expected to be a huge industry. Goldman Sachs projects that by 2022E, the esports industry will be valued at $3.1B, implying a four-year CAGR of 35%. Today we are going to take a deep dive into the industry and look at some Canadian publicly-traded companies in the esports space.
- The esports industry is expected to grow rapidly to $3.1B by 2022E, implying a 35% 5-year CAGR
- Viewership is expected to reach ~650M people by 2022E, with 50% esports enthusiasts
- There are 4 esports revenue streams: Media Rights, Sponsorship, Advertising, and Ticket Sales
- There are 5 main Canadian publicly-traded stocks, which we believe are poised to take advantage of this significant opportunity
- New Wave Esports Corp. (CSE:NWES) is our highest conviction idea in the space because it has the largest presence across all 4 revenue verticals
This article will provide a brief introduction to the esports industry and some of the publicly-traded companies in Canada.
What is esports?
Esports is competitive video game playing in games of all genres including strategy, shooters, fighting games, sports, and other types of real-time online multiplayer games. Esports athletes, who have practiced for thousands of hours, compete independently or in teams at competitions globally. Last July, teenage Fortnite sensation Kyle Giersdorf won US$3.0M at the Fortnite World Cup in New York City. These tournaments can be held both at physical locations, such as a stadium, or online and streamed though TV, OTT, or mobile. Esports is expected to reach an audience of 645M by 2022E, implying a five-year compound annual growth rate of 14% (Figure 3). In our view, esports is not too different from traditional sports, as both are a form of entertainment that involve competing and watching others play games, whether on TV, streaming, or live in stadiums.
How does esports make money?
There are four main revenue streams in esports, which include advertising revenue, sponsorships, event ticket sales, and media rights, in addition to game publishers and merchandise, which we view as more ancillary. There are many companies across all verticals, from game publishers (Activision Blizzard, Riot Games, and Microsoft), to brands (Coca-Cola, Nike, Intel, Bud Light, and Audi), and Media (YouTube, Twitch, and ESPN) with publicly-traded esports companies typically landing across the four main verticals, albeit some to do publish games and sell merchandise. By 2022E, the $3.1B market, Media Rights, Sponsorship, Advertising, and Ticket sales are expected have market shares of 43%, 38%, 15%, and 4%, respectively (Figure 4).
Esports has paved the way for a new paradigm in content distribution.
The majority of esports viewership takes place online, utilizing the same applications of distribution where multiplayer gaming takes place. According to a report by Nielsen, over 80% of esports fans stream games and tournaments through YouTube Gaming & Twitch in North America and via Douyu & Huya (owned by Tencent) in Asian-Pacific countries. As such, we expect these platforms to drive much of the expected viewership and ad revenue in esports.
New Wave Esports is our highest conviction idea in the space, followed by Enthusiast Gaming.
New Wave Esports offers capital and advisory services primarily to esports teams and events. We believe that NWES has the largest presence across the four main revenue verticals. NWES is also focused on the console segment of the esports space. While the majority of esports are currently played on the PC, we believe that there is some potential for console games. Fighting and sports games, such as Super-Smash Brother, Street Fighter, FIFA and NBA Live, have the potential to help consoles gain traction and currently New Wave is the only player looking at the console space.
Investments include Team Lazarus (through Tidal Gaming) and Team Talon, which are two of the top teams having won multiple championships and Event Matchup Gaming.
New Wave is set to capitalize on sponsorships and media rights, in which both these teams are expected to receive. In addition, NWES is hosting tournaments through its equity stake in Event Matchup Gaming, which hosts 80+ tournaments per year. Event Matchup Gaming’s flagship event, Enthusiast Gaming Live Expo (EGLX), is hosted at the Metro Toronto Convention Center, in conjunction with Enthusiast Gaming (TSXV:ELGX). The event boasts an attendance of 30,000, with pre-sales tickets starting at $55. In addition, Event Match hosts the largest Super-Smash Brother competition, Get on My Level (GML), which had ~1,200 attendees in 2019, with an average ticket price of $50.
Media Rights, Sponsorships, and Advertisements are likely to be the most lucrative revenue streams in the long term; we believe that events will be key to establishing a brand presence in the short term.
With EGLX and GML in their 5th and 6th years of operation, events like this can help teams increase their following, and help them to get noticed by sponsors and advertisers. Events are also livestreamed on Twitch and YouTube, further expanding team presence globally. Viewership at these tournaments is bigger than ever, even surpassing traditional sports and, in our view, this will be a key vertical in which to maintain a presence.
Other players, such as ePlay, Axion, and FANDOM are focused mainly on one revenue vertical and lack the breadth that New Wave Esports and Enthusiast Gaming have.
ePlay is more into the augmented reality side and mobile game side of things; Axion is more of a publisher with a popular esports game (Rising Fire); and FANDOM is focused primarily on sports.
Featured Publicly-Traded Esports Company Descriptions
New Wave Esports Corp. (CSE:NWES)
New Wave Esports is an esports and competitive-gaming focused investment company based in Toronto and LA. The Company offers capital and advisory services (acting as an operator in portfolio companies) to the esports industry, primarily to teams, organizations, events, tournament organizers, platforms, networks, technologies, and tools. New Wave Esports has investments in Talon Esports, which has won multiple championships across various gaming titles including Overwatch, Street Fighter V, and Tekken 7. New Wave also owns an 18% stake in Event Matchup Gaming, a Toronto-based leading esports and competitive gaming event organizer that hosts 80+ events a year including tournaments.
Enthusiast Gaming Holdings Inc. (TSXV:EGLX)
Enthusiast Gaming Holdings owns and operates an online network of websites devoted to video gaming as well as Canada’s largest video-gaming expo. EGLX’s content platform consists of over 80 gaming websites with more than 75M visitors every month, which has driven more than 12B ad requests per month. Behind Twitch Interactive, EGN Entertainment, and GameSpot, Enthusiast’s content is one of most viewed North American gaming sites. Enthusiast also owns Luminosity Gaming, which has esports teams in 7 games, most notably COD, Fortnite, and Overwatch. In addition, Enthusiast is also an owner of Canada’s largest gaming expo, Enthusiast Gaming Live Expo, with approximately 30,000 people attending in 2019.
ePlay Digital Inc. (CSE:EPY)
ePlay Digital engages in developing and operating broadcast and live video technologies. As a mobile game creator specializing in sports and augmented reality (AR) entertainment, the Company offers white-label videos and marketing platforms. Management recently issued revenue guidance, stating that it is expecting US$42 million in revenue by 2021, generated primarily through consumer product sales and software licensing fees. At the 2019 Consumer Electronics Show (CES), the Company announced that it will add a new AR version to Big Shot AR, the first augmented reality sports mobile game.
Axion Ventures Inc. (TSXV:AXV)
Axion Ventures is an investment company with a majority ownership in Axion Games, an online video game development and publishing company headquartered in Shanghai, China. The Company also has majority ownership in True Axion Interactive Ltd., its video game development company in Bangkok, Thailand. Axion Ventures (AXV) also has several other portfolio companies in related innovative technologies. Axion recently announced the initiation of the prototype for its mobile version of the popular PC game, Rising Fire.
FANDOM SPORTS Media Corp. (CSE:FDM)
Fandom Sports Media is a sports entertainment and gaming company focused on finding and creating the best interactive sports content. The Company allows sports fans to unleash their primal sports passions by engaging with other fans, cheering for their favourite teams and jeering their opponents.
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