Mobile Gaming Esports (NASDAQ: MGAM) has seen its share price rocket on Monday after the company’s Friday IPO saw it beat expectations.
The India-focused company had offered 1.5 million shares at $4 each at the end of last week, raising around $6m for the business. However, its share price has since soared to $17.71.
The stock has clearly excited some investors, but is the business worth your attention?
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What is Mobile Global Esports?
The company is focused on the esports industry, with special emphasis on India and other South Asian markets. The company has followed this route as it believes that the Indian market for esports, and particularly university esports events in India, represents one of the largest and fastest growing esports markets in the world.
The company says it is the only business in India to organize and sponsor an officially sanctioned national championship for university esports.
The business’ long-term strategy is to differentiate itself in the mobile esports industry by developing its own intellectual property in the form of new esports gaming models, predictive consolidated data feeds and new platform and software services based on recent advances in the development of artificial intelligence.
The business was created in March 2021 to carry on and expand an esports business started by Sports Industry of India (SII) in 2016. SII holds a 14.5% minority common share interest in the company but has no controlling interest.
How Does Mobile Global Esports Make Money?
The company’s primary revenue sources are sponsorships, advertising, event registration fees and the sale of merchandise that includes its trademarks and the logos and other trademarks of university teams that compete on its platforms.
These revenues have been, or will in future be, raised by events such as open tournaments which build awareness, intra-university tournaments, inter-university tournaments, conference and divisional championships, national university championships and international friendlies.
The company also plans to promote itself as a primary channel for game development companies to launch new mobile esports games for the Indian and South Asian markets, with the expectation it can negotiate sharing arrangements covering new game revenue streams with these companies in exchange for their access to its players.
MGAM Stock Financials
The company has not yet reported income from operations and had no significant revenue-generating operations as of March 31, the date of its most recently recorded results. The business said the expected net proceeds of its offering would be sufficient to meet its cash, operational and liquidity requirements for approximately two years.
MGAM Investment Risks
The company claims to be the first business focused on mobile esports to become a publicly listed company in the United States. However, it faces significant competition from peers in India.
Its main online gaming esports competitors are UCypher, an esports league, Newgen Gaming/Penta Esports, Gaming Monk, WinZO and Gamerji.
Some of these business’ are vastly more established than Mobile Gaming Esports. For example, Gamerji has conducted more than 6,000 esports tournaments, with 150,000 new users per month during the Covid lockdown, according to Inc42, an analytical firm that covers the startup ecosystem in India.
Additionally, the company says it expects the number of companies offering products and services in its market segment to increase and has acknowledged that most of its current competitors have far greater resources.
While there are risks stemming from high competition, the company seeks to stand out by catering to the university mobile esports market. It has reached this market early, with some of its management team having been responsible for the first competitive Indian university esports competition back in 2017.
Additionally, the company says it has obtained a license to certain rights to promote and commercialize university esports programs in association with 73 leading universities in India and with the Association of Indian Universities.
Aside from the issue of competition is the issue of regulation. Gaming and gambling are areas which have attracted significant regulatory attention in India, with some Indian states moving to ban fantasy cricket games and other real money online games.
However, MGAM is confident that its events, despite their monetary prizes, are geared towards games which are fairly defined as competitive games of skill, timing, knowledge, experience, practice, attention and teamwork, but not games of chance or luck.
MGAM Growth Potential
According to figures from Statista, the esports industry’s global revenue is projected to grow from $1.08bn in 2021 to $1.6bn in 2023, which MGAM says makes it one of the fastest-growing industries in the world.
A 2021 report from Ernst & Young projected that by 2025 10% of the global esports audience of 725 million will be from India. This is clearly a huge market.
Additionally, mobile gaming appears to be leading the esports charge in South Asia, where MGAM operates. According to SuperData’s 2020 Year in Review, the mobile esports market represents an estimated 70% of the total esports market in South Asia.
However, with so much competition in this arena, the company could struggle to make its mark. However, its successful IPO will not do the business’ chances any harm.
Is MGAM Stock a Good Investment?
It certainly looks like esports has a bright future ahead in India. With a rapidly growing middle class, fervent adoption of technology and huge population of young people, the nation looks like a great place for esports to flourish, assuming it faces no regulatory pitfalls.
However, that doesn’t mean that Mobile Global Esports is certified to succeed. While it carries some experienced leaders, the business itself is very new and has not yet reported any revenues.
Additionally, it is wading into a very competitive space, though it is trying to carve its own niche as a specialist at holding mobile esports tournaments for university students. There is always the risk that its more established competitors may use their substantial resources to muscle the business out of their way.
While the stock’s debut on the North American market has clearly attracted a lot of attention, there is no doubt that the stock is a risky investment. Consider your own personal tolerance for risk before backing MGAM stock.
