Neal Gilmer of Haywood Capital Markets slightly tempered his enthusiasm around Holdings of gaming enthusiasts (Enthusiast Gaming Stock Quote, Chart, News TSX:EGLX) as it maintained a “Buy” rating but reduced its target price from $12/share to $9.50/share for a projected return of 125% in a bet update to customers on Wednesday.
Founded in 2014 and based in Toronto, Enthusiast Gaming is a network of gaming media properties for video game and esports fans, with over 300 million players worldwide and generating over 40 billion annual views while targeting millennials and Gen Z gamers.
Gilmer’s latest analysis comes after Enthusiast Gaming released preliminary numbers for its fourth quarter financial results ahead of a full release on March 24, with Gilmer noting that the numbers are ahead of expectations.
“In our view, it is evident that management has been successful in driving organic growth complemented by acquisition growth,” said Gilmer, who said the target decline was due to multiple compression in the sector.
Enthusiast‘s preliminary results were highlighted by revenue of $56.9 million to show a 34% year-over-year increase while beating Haywood’s expectations of $52.1 million during the quarter.
The company also reported a preliminary report of $13.7 million in gross profit for the quarter, marking a 69% year-over-year increase, as well as a projected gross margin increase of 23. 3% to 24.1%.
Enthusiast also noted an 80% year-over-year increase in paid subscribers, ending 2021 with just over 220,000.
“These preliminary fourth quarter results again demonstrate the strength of our unique model and show our momentum as we look to 2022,” Enthusiast Gaming CEO Adrian Montgomery said in the company’s Feb. 8 press release. “We expect to have generated record quarterly revenues in the fourth quarter of 2021, driven by our continued strength in direct sales, our ability to acquire and integrate assets such as Addicting Games and U.GG, our ability to attract and retaining paying subscribers, and ultimately our flywheel of communities, creators, content, and experiences.
In total, Comscore reports 51.8 million unique web views for Enthusiast in the US in December, with the majority of the record audience coming from Millennials and Gen Z.
The company caused a stir on the esports scene in December, acquiring the U.GG community from League of Legends, as well as developing the accompanying desktop app. According to Gilmer, Enthusiast continues to be a trusted partner, as evidenced by renewal or additional business from Proctor & Gamble, HBO Max, TikTok, Disney and Square Enix.
Additionally, after the company completed its acquisition of Addicting Games in September, Enthusiast expanded in-app purchase and subscription offerings to several titles, including Little Big Snake, TypeRacer, ev.io, and mope.io.
“We anticipate the esports division will enter additional franchise and non-franchise leagues, increasing business reach and generating additional advertising and sponsorship revenue,” Gilmer said. “As Enthusiast continues to expand its business, we expect diversification of operations and increased monetization of assets.”
With the new quarterly financials in play, Gilmer has revised its overall financial projections for Enthusiast Gaming. The analyst has Enthusiast ending 2021 with $167.4 million in revenue for a 129.3% year-over-year increase. From there, Gilmer projects another jump to $209.9 million in revenue for 2022, suggesting a 25.4% year-over-year increase.
In terms of valuation, Gilmer expects the company’s EV/Revenue multiple to continue its descent, from 6.2x reported in 2020 to 2.7x projected in 2021, then to 2.2x projected in 2022.
Gilmer also sees Enthusiast nearly double its gross profit, with the $37.2 million estimate at the end of 2021 suggesting a 98.9% year-over-year increase and an implied margin of 22.2% . Gilmer then forecast a jump to $56.4 million in gross profit for 2022, forecasting a year-over-year increase of 51.6% and implying a wider gross profit margin of 26.9%.
Meanwhile, with continued investments in play, Gilmer maintains negative projections for the company’s adjusted EBITDA in 2021 (loss of $20.6 million) and 2022 (loss of $7.1 million).
“Enthusiast Gaming continues to build a platform for gamers to connect and ‘own the fan experience,'” Gilmer said. “We expect the company to strategically deploy its growth capital both internally and through acquisition opportunities, as demonstrated recently, which will support its growth trajectory through 2022.”
Enthusiast Gaming’s share price has fallen 35.9% in the past 12 months, although it has shown encouraging signs with a return of 10.7% for investors who bought early in the year. 2022. Enthusiast’s stock price hit a 52-week high of $10.87. /share on April 20, and is currently recovering from its 52-week low of $2.58/share, set on January 27.