Yesterday morning, Canaccord Genuity’s Robert Young raised their 12-month price target on Enthusiast Gaming (TSX: EGLX) to C$4.00 from C$3.75 and reiterated their buy rating. This comes after Canaccord Genuity hosted Enthusiast Gaming on a virtual marketing tour.
Young says that the virtual marketing was “well-received.” This comes off the back of a strong third quarter. He believes there is still upside to the stock, which has recently almost doubled during November.
Management said they could shift as much as 10% of their current media and content revenue to direct sales. Young thinks that management’s expectations on the direct sales opportunity could be conservative. He says, “We see potential for a flywheel effect to emerge as brands increasingly engage with the direct sales effort, which adds monetization opportunities which attracts esports talent, influencers with reach and premium content.”
Young highlights a few of the key takeaways from the management call. The first takeaway he talks about is Enthusiast Gaming’s ability to engage younger viewers. He states, “70% of its audience consists of Gen Z and Millennials, a target audience known as the “Untouchables” as they are difficult to reach,” and says that the company has a unique set of assets that touch every age bracket that uses the internet.
The next point he makes is that management guided for direct sales to have a material growth spike. Their direct sales grew from $100k in the first quarter to $1 million in the third quarter. Management said, “Q4 direct sales to be “multiples” of that in Q3, and we believe that this is just the start.” Management also reiterated their short term revenue and gross margin growth. Management then said they expect revenues to grow 20% in the fourth quarter, and Young says, “Management sees an opportunity to improve margins over time.”
The last highlight Young provides is that the company is expected to list in the US in early 2021. He says, “This, paired with a recently upgraded credit facility of $24M ($10M term loan and $14M revolver), provides EGLX with resources to pursue M&A and investments in direct sales.”
Young ends the note by saying, “We see several near-term catalysts including large direct sales opportunities in the pipeline, indications of a US listing in early 2021, and continued focus on M&A.”
Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
One Response
Traditional sports and entertainment franchises would dream of having the kind of growth EG is experiencing. That, along with the demographic and size of their user base, the future for EG and its shareholders looks bright.