GameSquare is one to watch, says Haywood

With a growing market base and a path to profitability in 2023, GameSquare Holdings (GameSquare Holdings Stock Quote, Charts, News, Analysts, Financials TSXV:GAME) is definitely one to watch in the tech, gaming and media space. That’s according to Haywood Capital Markets analyst Gianluca Tucci, who delivered an update to clients on the company on Friday.

Toronto-based GameSquare announced on Thursday its standalone first quarter 2023 financials along with first quarter pro-forma numbers following the April merger between GameSquare Esports and Engine Gaming and Media.

GameSquare is a vertically integrated digital media and entertainment company that connect global brands with eSports and gaming fans and has a portfolio of companies including digital media, merchandising, marketing and talent agencies. Engine Gaming is a marketing platform with live streaming data, analytics and programmatic advertising for customers such as video game companies, brands, e-commerce companies and media publishers. 

First announced last December, the two companies completed their merger on April 11th, and the combined company has kept the GameSquare corporate name and branding as well as the GAME ticker on the TSXV and Nasdaq exchanges.

“We believe that the combination of GameSquare and Engine Gaming creates a leading gaming, esports, and media company,” said Justin Kenna, Chief Executive Officer of GameSquare, in a press release.

”With a powerful end-to-end platform comprising media, esports, creative and technology assets, we believe that we have created unmatched capabilities to help connect global brands with gaming and youth culture audiences,” Kenna said.

On the Q1, GameSquare’s standalone revenue was flat year-over-year at $5.1 million while the pro-forma combined entity had revenue of $13.8 million compared to $12.9 million a year earlier. Standalone adjusted EBITDA was a loss of $2.3 million and pro-forma EBITD was a loss of $5.0 million. (All figures in US dollars except where noted otherwise.)

Looking at the results, Tucci noted the 2023 guidance featuring revenue of $75-$80 million, which compares to a trailing 12 months revenue of about $70 million. He said gross margins for 2023 are expected to be in the 30-35 per cent range with improving profitability starting in the second half of the year, while the company said it has identified $8 million in cost saving synergies to be realized from the merger.

“Management believes the combination of GameSquare and Engine Gaming may result in an audience reach as large as any gaming and esports company currently in the market,” Tucci wrote.

“The combination of creative digital agencies, an influencer marketing platform, innovative advertising solutions, leading programmatic businesses, an elite esports organization, audience intelligence technology, content production and merchandise and consumer product design means that the new entity will have an unrivalled end-to-end platform of services for brands seeking to reach gaming and youth culture audiences,” Tucci said.

“With a stronger market emphasis on profitable growth versus growth at any cost in years prior, the combined entity is expected to be on an accelerated path to profitability in 2023 and beyond, benefitting from operating leverage, revenue and cost synergies,” he said.