FaZe Holdings Inc. (FAZE, Financial) operates a lifestyle and media platform in gaming and youth culture and is a company that old Wall Street could never imagine would come to market.
The company produces content, designs merchandise and consumer products and creates advertising and sponsorship programs for brands, reaching approximately 500 million gaming fans across social media platforms. One of the core businesses is the sponsorship of esports teams, very similar to professional ball sports today. FaZe has a roster of more than 85 influential personalities, which include content creators, esports professionals and world-class gamers, as well as a mix of talent who go beyond the world of gaming.
With a total consumer reach of more 500 million young followers across social platforms globally as of June 30, the company delivers various content across video blogs, lifestyle and branded content, gaming highlights and live streams of competitive gaming tournaments.
Founded in 2010, FaZe made its public debut through a special purpose acquisition company transaction in July. The company currently has a market capitalization of $1 billion.
SPAC transaction
In July, the legacy FaZe business merged with a blank check SPAC called B. Riley Principal 150 Merger Corp. that was created in 2020 and went public in 2021. Concurrently with this transaction, the company also raised $100 million in a PIPE investment. Pro-forma for these transactions, the company would have had $64.3 million in cash and no long-term debt.
FaZe brand and history
FaZe began as a video gaming-only brand, but as the business and industry evolved, it was transformed into what is believed to be one of the most well-known youth culture and lifestyle brands in North America. The name is among the most recognized and engaged brands across both esports and traditional sports with more cross-platform actions on social media than the next eight esports organizations combined. The strength of its brand helps drive total audience growth as well as attracts new gaming talent, brand sponsors and collaborators to the platform.
Financial review
For the 2021 fiscal year, the company generated $52.8 million in revenue and $11.3 million in gross profits. The company is still in growth and build out mode, so it generated a net loss of $36.9 million. For the first six months of 2022, revenue was $34.6 million, which was an implied revenue growth rate of over 31%. The pro forma net loss for the first half of the year was $16.7 million.
Pro forma for the SPAC merger and PIPE transaction, cash as of June 30was $64.3 million and there was no short-term or long-term debt. Pro forma shareholders' equity was $70.6 million and total assets were $84.8 million.
Valuation
With a market cap of approximately $1 billion and expected revenue of $70 million for 2022, the stock sells at a price-sales ratio of 14. That puts it in the category of high-flying growth stocks such as Tesla (TSLA, Financial) and Snowflake (SNOW, Financial). The company has not given specific guidance on the path to profitability and free cash flow generation, so it is difficult to utilize traditional valuation methodologies.
Guru trades
The company is new to the market, so trades and new ownerships positions will not be reported until after the end of the third quarter. There does appear to be a high level of insider ownership based on information in the most recent S-1 filing. Another interesting shareholder is rapper Calvin Cordozar Broadus Jr., more commonly known as Snoop Dogg, who owns 299,000 shares.
Conclusion
FaZe Holdings appears to have incredible opportunities ahead of it and a very large addressable market. The company has expanded past its gaming roots and is becoming prominent in youth culture with over 500 million combined social media reach and an estimated 130 million unique users. The global video streaming market is expected to grow at a compound annual rate of over 20% from 2022 to 2028 and the esports audience is approximately 530 million and expected to grow at an over 6% annual rate. About 80% of the FaZe audience is between 13 and 34 years old, a target market that is difficult to reach with traditional media.
Although the valuation of the company is currently uncertain based on limited financial information, the company seems poised for strong growth going forward.
