Shares of Holdings of gaming enthusiasts (NASDAQ: EGLX) were up 14.3% as of 11:02 a.m. ET on Tuesday after reporting first-quarter results on Monday.
The company reported an increase in content viewership across its gaming communities and platforms. Revenue grew 57% year-over-year, driven by strong monetization trends across its online properties , to an increase in direct sales, subscriptions and acquisitions of Addicting Games and U.GG properties. This is a good start to the year in what is typically a slow seasonal quarter.
Enthusiast Gaming is on a mission to create the largest multimedia platform for gaming and esports fans, and the latest operating results show good progress. The company has built an audience of 300 million people per month across 100 websites and channels on social media platforms. The next phase of management’s strategy is to monetize these viewers through subscriptions and advertisements.
The company ended the quarter with 233,000 paying subscribers, up from 207,000 in January. This fuels improved profitability.
Gross margin grew more than twice as fast as revenue in the first quarter. The company still reported a net loss of C$11 million ($8.5 million) on revenue of C$47 million, but this is an improvement from the loss of C$13.5 million in the prior year quarter.
CEO Adrian Montgomery said the company has started the year well and should continue to generate rapid growth: “Our flywheel model, centered on communities, content, creators and experiences, continues to drive increasing value. Our team is well positioned to continue to deliver rapid revenue growth, while growing gross profit at a significantly faster rate.”
A key part of the investment thesis is not only the growth of the video game and esports industry, but also the expansion of margins. The company’s gross margin was 28.6% in the quarter, but management sees a trajectory towards 50% in the long term. After an improvement in gross margin of nearly 9 percentage points year over year, it is heading in that direction.
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