INVESTING

Toronto-based e-sports company Enthusiast Gaming files for U.S. listing.

Enthusiast Gaming Holdings Inc.

has applied to be listed on the Nasdaq exchange as it builds a “war chest” to pursue further acquisitions in the gaming and e-sports space.

The Toronto-based company filed its registration statement with the U.S. Securities and Exchange Commission on Tuesday to trade on the tech-heavy Nasdaq index. Enthusiast has been on an acquisition tear over the past few years, scooping up smaller gaming and media companies.

“The Nasdaq gives us access to deep pools of capital for us to execute our business plan,” said Adrian Montgomery, Enthusiast's chief executive. “We want to buy and build more fan communities, whether they're on YouTube, the web or other platforms like TikTok, because this is where Gen Z and millennials are spending their time.”

The firm's fan communities include 300 million gamers — 65 million of which are in the U.S. — across 100 websites and a network of 1,000 YouTube channels. It also has 500 influencers on social media and gaming platforms.

Enthusiast's stock surged during the pandemic as investors piled in, pushing the company to a market cap of $1 billion in March. Enthusiast first went public on the TSX Venture Exchange in 2018, becoming one of the few publicly traded e-sports companies, and moved to the TSX in early 2020.

While the company saw revenue jump to $73 million in 2020 from $12.2 million in 2019, it is still losing money, recording a $26.9-million loss for the year ended Dec. 31.

Montgomery attributes the rapid cash burn to its ambitious acquisition plan. Enthusiast Gaming has bought about 15 companies in the past two years, he said.

“We're plowing our resources into growth and acquiring as many connection and engagement points as we possible can,” he said. “By the time the industry matures, we want to have been as hungry at acquiring assets as we possibly can.”

The gaming industry is expected to reach a valuation of US$295.6 billion by 2026, up from US$162-billion in 2020, according to Mordor Intelligence. Amazon-owned Twitch, the largest videogame streaming platform, hit an all-time high in hours watched, reaching 6.3 billion hours in the first quarter of 2021, up from 3.1 billion during the same period last year, according to Steamlabs.

But Enthusiast's competitors in its main segments — digital content, e-sports and events — are already popular across the gaming community. Gamer messaging and engagement platform Discord attracts more than 100 million active users every month and e-sports organization FaZe has more than 240 million followers across its social platforms and gamer messaging.

Montgomery says the firm's advantage in the growing competition in e-sports is its wide footprint across various lines of business. It reaches gamers after they've put down their controllers, feeding videos and other content across gaming websites, YouTube channels, influencer engagement and live events.

While the firm generates most of its revenue by sales and advertising through its media and content creation, it would benefit from subscriptions across its multiple platforms, analysts say.

“Subscription revenue growth will also play a role in margin expansion as the company works toward (profitability),” Paradigm Capital analyst Corey Hammill wrote.