GameSquare: At The Peak Of Its Game -

GameSquare: At The Peak Of Its Game

Oct 21, 2024Jeremy ParkinsonFinance0

GameSquare recently released some impressive numbers, following a potentially game-changing acquisition. We took a deep dive into the company, including an exclusive interview with its CEO, Justin Kenna.
Image Source: GameSquare Holdings
In 2023, GameSquare Holdings, Inc. (GAME), with its media content and creative expertise, merged with Engine Media, an expert in data and tech capabilities, and got listed on NASDAQ as a publicly traded company that connects brands with youth culture and gaming fans. The company operates in a booming but competitive industry, and their smartest move lately has been to acquire and consolidate Faze Clan, one of their largest competitors. GameSquare says their mission is to connect “brands and game publishers … with hard-to-reach Gen Z, Gen Alpha, and Millennial audiences.” They have a software-as-a-service (“SaaS”) program as well as a creative agency and self-owned IP. The SaaS program provides data-driven insights, influencer management, and managed services to game publishers. Content production, media strategy and placement are services offered by the creative agency. According to company filings:

GameSquare’s end-to-end platform includes Gaming Community Network (a “GCN”), a digital media company focused on gaming and esports audiences, Swingman LLC dba as Zoned, a gaming and lifestyle marketing agency, Code Red Esports Ltd. (“Code Red”), a leading esports organization, GameSquare Esports Inc. dba as Fourth Frame Studios, a creative production studio, Mission Supply, a merchandise and consumer products business, Frankly Media, programmatic advertising, Stream Hatchet, live streaming analytics, and Sideqik a social influencer marketing platform.

Besides these core businesses, GameSquare also recently acquired FaZe Clan, a leading esports and lifestyle brand with a large social media presence which was started in 2010, and now has over 500 million followers. Lebron “Bronny” James Jr., son of basketball legend LeBron James, is a member of FaZe Clan.

Revenue model and revenue figures
The three revenue tracks at GameSquare are: Software as a Service, Full Service Creative Agency, and Owned and Operated IP. The company has a significant presence in the esports engagement landscape, claiming 38% of all esports engagement. In 2023, pro forma revenue reached an estimated $96 million, with a projected $100+ million guidance for 2024. This represents an estimated annual growth rate of 25-30%. Their Owned & Operated IP, which includes FaZe Clan, generated the largest portion of revenue at $56 million in 2023. FaZe Clan, which was recently acquired by GameSquare, had a powerhouse performance. They operate a dual revenue model, generating over $75 million in licensed products alone between 2022-2023. They boast successful collaborations with brands like Nike, Totino’s, and Ghost. GameSquare emphasizes the under-tapped potential of the gaming and creator economy, projecting it to reach $250-500 billion. The company operates with a tight capital structure and high insider ownership (31%). In August, the company won $14mn in new contracts, a record for total contract value for any single month.Just released preliminary Q3 results (Oct 17, 2024) shows that the company just raised guidance, and now expects annual proforma revenue of $105M to $110M vs. consensus of $104.39M for 2024, compared to its prior guidance of $100M. They also expect a 4% higher gross margin in Q3 compared to Q2, as well as a $3mn improvement in adjusted EBITDA loss. They estimate revenue to exceed $26.5 million for the quarter. Final earnings data will be released on November 14. Industry and business strategyEsports, i.e. competitive online multiplayer gaming, is a growth industry, driven by advancements in technology, the rise of competitive gaming, and the popularity of live streaming platforms. The global esports industry is projected to grow from $2.55bn in 2025 to over $18bn by 2035, driven by an increasing interest from mainstream industries to what now attracts particularly younger demographics. GameSquare positions itself right in the center of this industry, with an interest in bringing together brands and the gaming universe.Some of the trends influencing this industry are Increased Viewership, Brand Involvement, Franchise Leagues and Technological Innovations. In Industry Viewership, platforms like Twitch and Youtube Gaming have made esports a spectator sport that attracts nearly a billion viewers worldwide. This has led to non-endemic brands becoming involved in advertising and sponsorships. Such brands come from automotives, beverage and tech companies. This has caused major esports leagues to adopt franchising models, similar to traditional sports, where teams buy into leagues for long-term participation, like the Overwatch League or Call of Duty League. The whole industry has been buoyed by tech innovations like VR/AR, 5G, and other technologies that are shaping the future of interactive gaming experiences and competitive play.

Competitors
GameSquare faces competition across various dimensions, from esports organizations to media companies. However, unlike many of these players, GameSquare positions itself as a one-stop player, offering both creative content and tech to brands. Such a solution is important because of the synergy between content and tech, which is more efficient in a one-stop shop than in niche players. Despite that, there is competition. Key competitors include:

100 Thieves: A multi-faceted esports organization, 100 Thieves has built a robust brand that spans esports teams, apparel, and digital content creation. They focus heavily on lifestyle branding, appealing to gaming culture enthusiasts.

Enthusiast Gaming: A direct competitor in the content and media space, Enthusiast Gaming is a media company with a focus on esports content creation, influencer marketing, and advertising. They have a large network of gaming websites and content platforms.

Team SoloMid (TSM): TSM operates highly successful esports teams and also runs Blitz, a software platform for game analytics, giving them an edge with tech integration. They generate revenue from sponsorships, advertising, and software services.

OverActive Media: A Toronto-based esports organization, OverActive owns teams in multiple leagues and has made efforts to integrate traditional sports practices with esports. They also focus heavily on venue operations and media production.

G2 Esports: A globally recognized esports team, G2 has a significant presence in Europe and boasts strong partnerships with major sponsors like Red Bull and BMW. They are known for high-level competitive play and content creation.

Other highlights
GameSquare’s subsidiary, Zoned, excels in creating immersive brand experiences within popular gaming platforms like Fortnite and Roblox (RBLX). They handle everything from game development to marketing and content production for clients like Prime (DOMWF), Coca Cola (KO), Samsung (SSNLF), and Mastercard (MA). They have an experienced management team, with key figures like Tyler “Ninja” Blevins who joined as CIO in 2023, and investors like Jerry Jones, owner of the Dallas Cowboys, as well as John C. Goff, and Travis Goff. To be noted, in 2021, GameSquare formed a partnership with the Dallas Cowboys. This strategic move is significant because it allows GameSquare to connect with one of the largest sports franchises globally.UEFN (Unreal Editor for Fortnite) allows GameSquare to create branded in-game experiences, leading to significant opportunities with publishers like Epic Games.GameSquare leverages its Owned and Operated IP by creating events, media content, and merchandise, building on successful IPs like Ninja NYE and FaZe Arcade.In 2022, GameSquare signed a deal with TTT (Team Trigger Thumb) and organized the largest creator event ever hosted, showcasing their growing capability in organizing such large events.

Bottomline
GameSquare is at the top of its game right now, and with the acquisition of Faze Clan, the company is also moving ahead towards profitability. The esports industry is a booming market, and GameSquare is positioned just in the right place at the right time, and with just the right capabilities. This is a good time to invest in this company. Q&A With GameSquare CEOI had the opportunity to connect with GameSquare CEO, Justin Kenna, to ask him some questions about GameSquare. His responses are below:

Of the three primary revenue tracks for GameSquare, which one do you think is the most important, financially?

Agency and Media: Due to it being fastest growing segment and high margin
SaaS: Whilst lower on total revenue compared to the other 2 segments, it’s the highest margin area of the business with high customer retention that establishes a predictable source of annual recurring revenue
Owned and Operated IP, which includes esports teams: Overall the highest revenue area of the business, whilst being slightly lower on margin, so it support top line growth
All three segments are equally as important for the different reasons listed above

What are some trends and opportunities GameSquare sees within its Software as a Service offerings.

Trend: Marketing teams, particularly at game publishers, are looking for a more complete solution to manage their creator programs at scale and in one place – from access to data, to campaign execution and tracking/measurement – this is why we’ve seen strong momentum with selling Sideqik and Streamhatchet as a combined offering
Opportunity: Due to recent layoffs, more teams are starting to outsource their needs via managed services as they don’t have the resources in-hose, which is why we have launched a managed services offering

What is the significance of UEFN in GameSquare’s creative agency revenue track?

It’s one of the fastest growing offerings for our business, with sustained demand from existing and new clients due to it being a growing trend for immersive entertainment
Some of the top tier clients we have worked with over the last 12 or so months in this area include Samsung (SSNLF), Mastercard (MA), CocaCola (KO), McDonalds (MCD), Top Golf (MODG), 5-Hour Energy, PRIME Energy (OAMCF), Converse (NKE) and more

How does GameSquare leverage its Owned and Operated IP for revenue generation?

One way is by creating new owned IP such as our NFL For The Fans IP, which we sell partnerships against
The other is FaZe Clan revenue, which sits under this umbrella

What are two key strengths of GameSquare’s financial performance?

Top line is on track to exceed $100M in 2024
There is a clear path to adj EBITDA profitability, with multiple quarters now trending in the right direction

According to GameSquare, how does its platform differentiate itself in the market?

We offer a complete end-to-end SaaS and agency solution for brands and game publishers looking to reach gaming audiences
We offer brands direct access to this hard-to-reach audience via our media network – one of the largest in North America as verified by Comscore
We have strong investors with the Dallas Cowboys owner Jerry Jones and the Goff families
Our client roster includes 8 out of the 10 largest game publishers in the world and some of the world’s most recognized brands including the NFL, McDonalds, Coke, Mastercard, Samsung, Nike and many more