We delve into a recent SPAC deal and an established gaming company and ask what is a better buy to benefit from the rise of esports?
Nov. 5, 2021
The gaming industry has seen accelerated growth and trends such as e-sports have emerged. With an estimated 26.6 million monthly e-sports viewers in the U.S. in 2021, and growing, which stock is a better buy to benefit from this trend?
Riley Principal 150 Merger Corp: Bull vs Bear arguments:
FaZe Clan is set to become publicly traded through a SPAC deal with B. Riley Principal 150 Merger Corp (NASDAQ: BRPM). FaZe Clan was founded in 2010 with a focus on content and has entered other areas such as merchandising, e-sports, and advertising.
Upon completion, FaZe Clan will be worth approximately $1 billion and will trade under the new ticker symbol 'FAZE'. It has some famous investors and brand ambassadors, including musician Offset and NBA basketball player and two-time all-star Ben Simmons.
FaZe Clan has a combined social media reach of over 350 million people, with 80% of its followers aged 13-34. Its following surpasses many sports teams across major leagues such as the English Premier League, NBA, and more. The ability to harness and monetize this following will be crucial going forward as overall e-sports viewership levels continue to increase.
The company will be led by Lee Trink, who will have $275 million in cash at his disposal. Trink has stated that this will be used to develop content, perhaps make acquisitions to fuel growth in apparel and non-apparel, and to add to the ten existing e-sports teams.
The level of cash that the FaZe Clan has to invest in the e-sports opportunity compared to larger players is also a concern. The ability to produce content and grow revenue consistently will also be a test for the company, and at a $1 billion valuation, there may be little room for error.
Activision Blizzard: Bull vs Bear Arguments:
Activision Blizzard (NASDAQ: ATVI) has developed several hit franchises such as 'Call of Duty (COD), along with a mobile division that includes 'Candy Crush'.
The company continues to monetize its user base, which reached 390 million monthly active users in Q3 2021, revenue of $2.07 billion, and posted a profit of $639 million.
Activision wants to be "the most innovative, scalable, and valuable developer of global competitive entertainment". Many of its games have become popular e-sports with leagues owned by Activision Blizzard such as the 'Overwatch League', 'COD League', and more.
There are numerous ways to monetize e-sports, such as partnerships, the sale of teams, merchandise, and more. It is still early days for e-sports, but there is a tremendous opportunity for growth. Activision is arguably best positioned due to its intellectual property and ability to invest due to its large cash pile of $6.4 billion.
Activision has faced several issues with its work culture, which has led to workplace conflict and several departures, which has caused delays to two games, including e-sports favorite 'Overwatch'.
So, which stock is a better buy right now?
Activision Blizzard, despite its issues, appears to be a better buy right now due to its diversified business and ability to tap into the growing e-sports market.
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