FaZe Clan guns for a $1B valuation as esports stocks struggle in the public markets

Sports or video games as a career? Here’s a stat for you. 30.6M people tuned in to the League of Legends World Championship, while 9.9M people tuned in to the 2021 NBA Finals.

With more than a third of the world gaming, a career in gaming is no joke. But we can’t say the same about esports stocks…

Esports isn’t ready for public markets prime time

Esports stocks went through a massive correction in the past year after a record jump in interest during COVID.

But just like other sports organizations, sponsorships keep the bills paid: more eyeballs, more money. “It’s a world where the most entertaining player has a more lucrative career than the best player” — Per FaZe Clan’s CEO.

Esports companies have high operating costs with astonishingly bad numbers. In the past 12 months:

• Guild Esports (LON:GILD) had $2.6M in sales with an $11.9M loss.
• Allied Esports Entertainment (NASDAQ:AESE) had $7M in sales with $17M in operating expenses.

The list of highly unprofitable esports companies goes on and on — all low market cap penny stocks.

Incoming: The first “billion” dollar esports company

FaZe Clan is the fourth most valuable esports organization, with 10+ esports teams competing in games like Call of Duty and Fortnite.

Last week, their board approved a proposal to go public by merging with SPAC B. Riley Principal 150 Merger Corp (NASDAQ:BRPM):

• The deal values FaZe with an eye-popping $1B valuation.
• In 2021, they made $53M in sales with a $29M loss (EBITDA).

The deal is expected to close in July, but there’s really nothing to be excited about. Per esports journalist Jacob Wolf (Digiday), esports companies are trying to value themselves like big tech companies.

At a $1B valuation, FaZe would trade at an expensive 20x sales multiple — a recipe for portfolio disaster.

Investors… Aren’t pleased

Brands turned to esports companies to reach a growing audience of gamers. But the sponsorships that support esports companies are demanding proven results on their marketing investments.

And investors are also unhappy with eSport stocks…

• An investment firm is trying to replace Enthusiast Gaming’s (NASDAQ:EGLX) board.
• Allied Esports (NASDAQ:AESE) had a warning from the stock exchange for missing earnings deadline in the past two quarters.

Esports is an emerging industry with much to figure out.