As esports and video games explode in popularity with billions of dollars in investment and sponsorships, one substantial corner of that market boasting one of the largest online community of gaming enthusiasts remains shockingly overlooked by investors. Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF), the North American gaming network with the highest number of monthly visitors also happens to be its most undervalued — a striking paradox that translates to an unprecedented opportunity for investors.
The rapid growth being experienced by the esports and video gaming sector has financial reporter Chris Parry – who first picked up on the rising popularity of cannabis investing, saying that video gaming now is what marijuana was back in 2015. In other words, he and other industry experts believe that this market and companies like Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) are set to see rapid growth in the future.
Already, Michael Jordan has invested in esport startup AXiomatic Gaming, which owns the professional-gaming franchise Team Liquid. Also, Canadian rap-giant Drake has acquired co-ownership of 100 Thieves, a “lifestyle, apparel and esports” company. These two entrepreneurs are not the only early market investors. New England Patriots owner Robert Kraft, New York Mets executive Jeff Wilpon and LA Rams owner Stan Kroenke have all invested in Activision Blizzard’s new Overwatch esports league.
To understand why the company is worth many multiples of its current valuation, we’ll first need to understand how the market has completely misread the tremendous potential behind Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF).
Enthusiast Gaming Is NOT a Conventional Ad Network – It’s a Community
The company operates a sprawling network of over 80 owned and affiliated gaming websites (including The Escapist, Daily Esports, Destructoid, Operation Sports, the Sims Resource and Nintendo Enthusiast) appealing to every niche gaming community and drawing in over 150 million visitors a month. Starting from just a single blog, Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) has continued to grow at a staggering rate, connecting an online community across several touchpoints.
Right now, however, Enthusiast Gaming’s (TSX.V:EGLX) (OTCQB:EGHIF) current valuation reflects that of a conventional ad network — something that it is not.
At their most basic level, these networks take unsold ad space from online publishers and sell them to advertisers, while getting a cut of the ad revenue. These ads are then sent to the site of that publisher. Ad networks essentially act as an intermediary between advertisers and publishers, owning no properties, other than the platform on which advertisers buy these ads.
What the market perceives is that Enthusiast Gaming functions very much like an ad network, deriving most of its revenue from advertising, clocking in over 12 billion ad requests per month across its network, with a growing volume of advertisers targeting its hard-to-reach demographic.
However, there are major differences.
Most notably, Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) ow and operates a significant amount of the traffic that goes through their network.. Typically, Enthusiast’s network of website affiliates earns a 70% revenue share of earnings. However, once the company identifies a high-performing affiliate, it then offers to buy the publisher outright, bringing additional revenue in-house. One example is the acquisition of “The Sims Resource”, the world’s largest female video gaming site. This strategy allows for more substantive growth and revenue opportunities.
- Enthusiast Gaming Doubles Network Reach to 150 Million Monthly Visitors
- Enthusiast Gaming Signs Exclusive Monetization Agreement With RankedBoost, The Leading Online Game Resource and Guide Site
- Enthusiast Gaming’s Property “The Sims Resource” Grows Paid Monthly Subscribers to 61,000, an Increase of 20% Since Acquisition
Per-user Valuation: Just A Tiny Fraction Of Comparable Communities
What Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) is doing is not simply connecting advertisers with publishers, but rather building a rich online ecosystem that can deliver untapped marketing potential and user engagement opportunities for brands.
Enthusiast Gaming’s (TSX.V:EGLX) (OTCQB:EGHIF) current market valuation, therefore, puts it well below that of comparable online networks, considering the size of its global communities.
Below is a quick look at some networks that have also built record-breaking valuations on the backs of their immense online communities:
The wide, gaping chasm we’re seeing between the sheer size of Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF)’s online communities and its current market value is thrown into even starker relief once we compare it against similar online platforms, using metrics such as “revenue generated per user” and “value per user.”
Let’s look at Reddit, a company with similar demographics and user focus. With its 330 million users and $110-million in annual revenue, Reddit generates just 30 cents of revenue per user every year. If you were then to look at Reddit’s marketing valuation of $3B, investors have decided that each user has a theoretical value of $9.09, essentially what the market figures to be the lifetime value of that user.
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF), with over 150 million users and is projected to have $10 million in revenue, generates around 13 cents per user—even less than that of Reddit. The company, of course, is still in the early stages of its expansion, and so as the community matures and more income streams come online, its revenue should grow as well. But even if Enthusiast’s value per user were pegged at less than half that of Reddit’s at $4, this would mean a market capitalization of $300-million—more than six times Enthusiast Gaming’s current market value!
Another community with the same demographic is the video game chatting platform Discord. With 200 million active users, Discord recently secured $150-million in financing for a $2.05-billion valuation. This puts the company’s value per user at roughly $10..
And finally, Twitch.com was acquired by Amazon for $970 million in 2014, but currently that valuation has ballooned to $3.87B. Twitch has approximately 140 million visitors and $435-million in revenue, putting their value per user at $27.64. Compare this with what the market sees as Enthusiast Gaming’s meager (lifetime!) value per user—roughly 60 cents—along with its projected annual per-user revenue of 13 cents. This is why this Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF)’s market undervaluation is almost unprecedented.
What’s the true value of online communities?
But can we truly compare platforms like Reddit and Twitch with Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF)? What all of these platforms share is one thing — they host authentic communities of passionate online gamers — and this means a lot to brands.
Online communities form the core of a user’s online experience — which is exactly why Reddit’s slogan is, “The front page of the Internet.” When users go online and explore, they will always return to anchors—whether it’s Facebook, Reddit, Twitter or their favorite online website forum, which serves as the home for their online community. Otherwise, they would be lost in a sea of random information and conversations, without a tether in which to turn to for personalized content, as well as like-minded netizens they can talk to.
Marketers fully understand the value of online communities in brand advocacy, creating excitement about their products and sharing tips, advice and other resources related to that product. As these communities grow, they allow brands to engage in real conversations with users and prospects, rather than just to serve them ads.
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF)’s most valuable asset is its huge authentic gaming community, and their continued loyalty and engagement with the company have allowed it to explore a host of strategic growth options, while branching into new channels, including brand deals, sponsorships, subscriptions, merchandise, and sponsored content.
The Power of a Large and Growing Community
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) hasn’t stopped growing either. Recently, it recently acquired The Sims Resource, the world’s largest online female video gaming content and community destination with 2.5 billion page views per year, while generating over 10% of the total views of Twitch.com. The company further increased the size of its ad network this January with an agreement to represent all of Omnia Media Inc.’s gaming traffic in the United States, representing over 50 million monthly visitors and 400 million subscribers over 900 channels.
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) is also climbing the ranks of the top gaming sites in North America. EGLX’s current comScore rank is No. 5 in gaming traffic, behind frontrunner Twitch, followed by IGN, GameSpot and Curse. Of these sites, only Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) remains independent.
This enormous online network has also fueled the success of the Enthusiast Gaming Live Expo (EGLX), which recently surpassed 30,000 attendees, making it the largest gaming convention in Canada. This was promoted through sponsored pieces in Enthusiast’s large network of affiliated sites such as Destructoid. The skyrocketing attendance figures of EGLX is testament to brands of how it can mobilize its own communities to engage and participate, and it’s clear that Enthusiast’s value per user will only grow exponentially from here.
A Passionate Management Team and Advisors Respected by Gamers
It’s clear that Enthusiast Gaming’s management is made up of passionate gamers who are an active part of the gaming community. Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) is viewed favorably within the gaming community, who can see that their independent grassroots passion for gaming is genuine and can’t be easily replicated by corporate sites such as IGN or Gamespot.
Here’s a quick look at the key figures behind Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF):
Menashe Kestenbaum CEO: A passionate gamer, Menashe got his start in video games when he was 13 writing for IGN, where he eventually became a community leader. In 2011, Menashe launched his first gaming blog, “Nintendo Enthusiast”. In 2014 he incorporated Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF), monetizing and growing the network since. Menashee has personally owned and operated gaming websites to a readership of over two million gamers, and has led Enthusiast – growing a writing and community staff of over 84 people.
Eric Bernofsky: COO & SVP of Finance: Eric was previously Director of Corporate Development for Pelmorex Media, which owned The Weather Network. Prior to that, Eric spent nine years covering the Canadian media, telecom and technology sectors as an Equities Research Analyst for Desjardins Securities at HSBC.
John Koller, Advisor: As the current Head of Global Integrated Marketing at Twitch, John Koller brings over 20 years experience with Electronic Arts and Playstation. As Playstation’s VP of Marketing, he led five platform launches as well as the multi-billion-dollar Playstation business in the US. Prior to to his 19 years at Playstation, John was head of marketing at Electronic Arts.
Ben Colabrese, Director: Ben Colabrese is the EVP, Finance at The Toronto Blue Jays, which is wholly owned by Rogers Communications. Ben has been with Rogers since 2015 where he held the roles of VP & GM of Mobilicity (which Rogers acquired in 2015), and SVP, Finance for the X1 Syndication Program. Previous to Rogers, Ben was the CFO of Pelmorex Media/The Weather Network. Prior to joining Pelmorex Ben was the VP, Corporate Development at Rogers from July 2005 to April 2013 where he was responsible for all M&A activity and completed over 30 transactions.
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF)’s market valuation belies its enormous online gaming community. Similar online platforms such as Reddit, Twitch, and Discord have per-user valuations that are orders of magnitude higher than that of Enthusiast.
Tapping a historic opportunity in gaming
A tremendous amount of investment, advertising and sponsorship money is flowing into gaming these days. With Goldman Sachs forecasting esports audience to surpass even the NFL in viewership numbers, Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) 85 gaming sites will be there to soak up much of this stellar growth.
The largest gaming network in North America
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) sits at ground zero of the gaming and esports opportunity. With 150 million online visitors per month, Enthusiast Gaming is already the largest gaming audience in North America and growing.
A community of gamers, built by gamers, for gamers
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) management executives such as Menashe Kestenbaum and Niero Gonzalez are passionate gamers themselves and respected veterans of the industry, with a finger on the pulse of the gaming community.
Agnostic platform, lower risk opportunity
Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) is an agnostic platform that covers all subsectors of the gaming industry. Most gaming industry peers like game developers and esports teams put all their eggs in one basket, with significant amounts of upfront capital. Enthusiast Gaming’s network strategically covers a variety of topics, content formats, and media platforms which provides a lower risk investment option into the gaming sector
This next gaming wave may be unprecedented
Analysts are now seeing the floodgates starting to open for esports investment, similar to what happened with marijuana investment a few years back. As Chris Parry says, “Cannabis in 2015 is esports in 2018.” Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) looks to be well ahead of the curve, building a huge network of authentic gamers willing to spend on both online products and in-person experiences.
EGLX’s unparalleled momentum
In the past three years, Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) has grown from one online blog website and a small series of gaming meetups to the largest gaming network in North America. Enthusiast Gaming (TSX.V:EGLX) (OTCQB:EGHIF) is still climbing the ranks of the top gaming sites in North America and has booked an amazing 625% year-on-year revenue growth in its last quarter.