What it does
AIM-quoted Gfinity (LON:GFIN) is a world leader in the fast-growing market for esports.
The company provides full end-to-end esports solutions, including bespoke content, tournament and event solutions for commercial partners via its proprietary online platform and live broadcasting studio, plus it is building its owned Elite Series brand and hosting its proprietary Elite Series tournament format.
Revenues are derived from managed services fees for third-party events, and advertising and sponsorship.
Several big names have hired Gfinity to be its event partner and to look after the logistics of running a successful tournament, including none other than Microsoft.
The tech giant has partnered with Gfinity on numerous occasions, including for its Halo and Forza Racing championships.
Formula 1 has also used the company’s services to run its competition to find the best virtual racer in the world, as has the Premier League, which launched its ePremier League last year and in February 2020 appointed Gfinity to operate a US version of the tournament in partnership with the NBC Sports network.
Major game developers have also partnered with the company for various events, including a charity livestream in late-October which Gfinity hosted alongside Call of Duty developer Activision Blizzard Inc (NASDAQ:ATVI).
How it's doing
Gfinity’s main presence is in the UK – the Gfinity Arena is in London – but it has been moving into other territories of late, where demand from gamers is also booming.
Last year, management decided to exit a joint venture in Australia, which they decided needed too much extra money to make it economically viable.
Instead, bosses would rather ramp investment in the more attractive US market, which, according to esports analytics group Newzoo, is the fastest growing market in the western hemisphere.
That reflects the new management’s strategy to focus spending on “value added areas”.
The firm has also secured deals to host major esports tournaments, most recently the NBA 2K League European Invitational, an esports tournament based around the basketball video game NBA 2K that is the first qualifying event of its kind in Europe.
In terms of the financials, for the 12 months ended 30 June, the firm reported revenues of £7.9mln, up from £4.3mln in the prior year, while its adjusted operating losses narrowed to £8.6mln from £12.2mln.
The company said the revenue surge was driven by growth in the size and number of its “strategic client relationships”, adding that it had continued to build partnerships with major brands including Microsoft, video game firm EA Sports and Formula 1.
The group has also forecast an improvement in gross profits as a result of tight controls on its administrative expenses.
In a trading update for the six months ended 31 December 2019, the firm said after “significant growth” in its higher margin revenue streams it now expected gross profits to rise 300% to £2.1mln, while adjusted operating losses will be cut to £2.4mln from £4.4mln.
This is despite revenues for the period being forecast to fall to £3.5mln from £4.4mln, which was attributed to the firm’s shift away from its low margin business activities.
In a strategic review in March, Gfinity added that it will be “sharpening focus” on three core areas of existing success and competitive strength: its own community, building community for others, and motorsports with Formula 1 as the anchor client.
The firm has also appointed a new chief executive, former global commercial and brand officer John Clarke, and a new chairman in the form of its former president and co-founder Neville Upton.
What Proactive's analyst says
Proactive Research analyst Ed Stacey says Gfinity's recent results reflect the strategic initiatives undertaken by the new executive team since 2018.
Stacey says the firm recently reported full-year June 2019 results in line with the upgraded trading update issued in July with revenue growing 82% year-on-year.
He adds that the company's making further progress towards its objective of EBITDA break-even by FY 2021.
Longer-term, Gfinity is confident it remains on track to reach EBITDA break even in 2021. According to Proactive Research analyst Ed Stacey, the company should even turn a small profit of £0.64mln.
That quest for profitability will be aided by the continued growth of the global esports market, the value of which will top US$1bn (£900mln) this year.
By 2022, Newzoo thinks that figure could swell to over US$3bn, while worldwide audience figures are forecast to grow to around 650mln.