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Beat the market this year with Enthusiast Gaming, says Haywood

EGLX stock

It’s been a tough road for fans of Enthusiast Gaming (Enthusiast Gaming Stock Quote, Charts, News, Analysts, Financials TSX:EGLX) over the past couple of years, as the stock has been solidly crushed after a meteoric rise over the first half of 2021.

But investors can have faith that the market will come around, especially after a turn to profitability expected later this year. That’s according to Haywood Capital Markets analyst Gianluca Tucci, who provided an update on the video game and esports company on Tuesday and reiterated a “Buy” rating on the stock.

Gaming media and entertainment company Enthusiast Gaming announced on Monday its first quarter 2023 financials, showing revenue at $42.9 million compared to $47.2 million a year earlier. Adjusted EBITDA was negative $3.9 million and the net loss was $8.7 million compared to a loss of $11.0 million a year ago. 

Notable events over the quarter included 35 million impressions across its Luminosity Gaming platform, which won nine championships, the completion of the first season of NFL Tuesday Night Gaming and a five per cent rise in paid subscribers to 275,000.

“The rapid transformation of Enthusiast Gaming from a collection of entrepreneurial assets to an enterprise-scale platform company built around a single technology stack is underway,” said CEO Nick Brien in a press release.

 “In the ten weeks since I joined the company, we have begun to reorganize around a unified vision, strategy, structure and processes that will unlock the true potential of our diverse brands and highly engaged audience. There is a tremendous opportunity in front of us to increase the spend of our current advertisers, while attracting new brands to the emergent gaming marketing sector,” he said.

Enthusiast’s $42.9 million in revenue compared to the consensus estimate at $44.5 million and Tucci’s forecast at $43.0 million, while the adjusted EBITDA loss of $3.9 million compared to the Street’s call at negative $5.2 million and Tucci at negative $4.3 million.

The analyst said key performance indicators (KPIs) looked good for Enthusiast, pointing to direct sales up 92 per cent year-over-year to $10 million, paid subscribers up 18 per cent from a year ago and web views up four per cent, while video views dropped by 19 per cent.

“EGLX reported an in-line Q1/23 with KPIs continuing to trend positively. The company continues to point to adjusted EBITDA profitability in 2023 and is expecting continued weakness in revenue per 1,000 impressions (RPMs) in H1/23,” Tucci wrote.

“EGLX has been illustrating continued, deepened monetization of its viewership base despite facing a tough macro [environment] in Media & Advertising,” he said. “Alongside the company’s outlook, we look for adjusted EBITDA profitability in H2/23.”

By the numbers, Tucci is forecasting full 2023 revenue at $207.8 million and rising to $239.0 million for 2024, while on adjusted EBITDA the call is for negative $0.5 million in 2023 and positive $13.6 million in 2024.

With the update, Tucci reiterated a “Buy” rating on the stock and $3.50 target, representing at press time a projected one-year return of 367 per cent.

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