Record Revenue and Momentum Drive Transformative Year in Esports and Gaming

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GameSquare Holdings Inc. (GAME:NASDAQ; GAME:TSX) has released its preliminary financial results for the third quarter of 2024. The company showed an estimated revenue exceeding US$26.5 million. Further, GameSquare highlighted significant growth across its revenue streams, with US$9.4 million from owned and operated IP, US$15.5 million from its agency and media segment, and US$1.6 million from SaaS.

This marks a notable improvement in gross margin, which reached approximately 18%, compared to 14.8% in Q2 2024. The company attributes this to revenue mix optimization, offset by start-up costs from new programs. GameSquare also reported an estimated adjusted EBITDA loss of US$2.4 million, reflecting a US$3.0 million improvement from the prior quarter.

CEO Justin Kenna stated in the news release, "2024 is shaping up to be a transformative year for GameSquare as we drive organic sales growth, complete acquisitions, and focus on building a profitable organization. Our third-quarter performance demonstrates this progress and the positive momentum underway."

ESports and Digital Gaming

The gaming and esports industry has experienced substantial growth, becoming a dominant force in global entertainment. According to a report from TimeTech, global gaming revenue exceeded worldwide box office earnings, music streaming, and the combined revenues of the top five wealthiest sports leagues. This rapid expansion was driven by consumer demand for new entertainment experiences and a booming player base.

Roth MKM issued a Buy rating on October 18, with a 12-month price target of US$5.00.

Esports has risen to prominence, with competitors reaching professional athlete status. According to the Global Times on October 14, esports has evolved into a "mainstream international competition, on par with major sports, drawing millions of viewers worldwide." The Fortnite World Cup attracted 2.3 million viewers, with winners earning prize money comparable to traditional sports, as noted by the BBC.

Additionally, The Global Times emphasized that esports fosters global cultural exchange, uniting players and spectators through their shared passion for the game. This growing sector continues to demonstrate its power to connect diverse communities, driving further momentum in the global entertainment industry.

The BBC reported similarly on October 18 that the gaming and esports sector had grown into a US$175 billion-a-year industry, with a ~10% compound annual growth rate (CAGR). Since the COVID-19 pandemic, the gaming market's performance significantly outperformed the S&P 500, with US gamers increasing their spending by 75%.

Gamesquare Catalysts

GameSquare has been making strides toward profitability, increasing the number of customers on retainer, growing its average contract value by 46%, and tripling the number of UEFN world-building campaigns deployed.

The company also achieved record monthly contract wins in August 2024. These developments have contributed to improved revenue and profitability, which are expected to continue in Q4 as GameSquare's business scales. The company has increased its annual revenue guidance for 2024 to US$105 million–US$110 million, compared to the prior estimate of US$100 million, citing strong year-to-date performance.

According to the company's investor presentation, additional catalysts include cost savings from the integration of FaZe Clan, with over US$18 million expected to be realized by the end of 2024.

What Are Analysts Saying About GameSquare?

Analysts have shown confidence in GameSquare Holdings, Inc., with several firms maintaining a positive outlook.

Roth MKM issued a Buy rating on October 18, with a 12-month price target of US$5.00. The report cited the company's impressive revenue growth. Roth reported that GameSquare's revenue for Q3 2024 reached US$26.5 million, exceeding estimates of US$24.0 million and representing a 130% growth over the previous year.

This strong performance led the company to revise its full-year revenue guidance upwards to a range of US$105-110 million. Roth highlighted that GameSquare's adjusted EBITDA loss was also better than expected. It came in at US$2.4 million, compared to a loss of US$3.7 million in Q3 2023.

Roth further emphasized the company's long-term potential, stating that their valuation assumes an EV/Revenue multiple of 1.5x by 2026, based on their NTM revenue estimate of US$138.6 million. The analysts concluded that GameSquare is on a path to profitability, projecting an EBITDA of US$2.7 million for FY 2025, up from US$2.0 million.

Ownership and Share Structure

According to Refinitiv, 26.07% of Gamesquare is owned by management and insiders with John Geoff holding the most with 18.38%, Stuart Porter holds 3.60%, and Paul Hamilton holding 1.73%. Blue and Ventures Ltd hold 18.70% and Insitutions hold 11.01% with B. Riley Financial owning 4.66% and Crescent Real Estate LLC holding 2.46%.

GameSquare has 16.35 million free float shares and a market cap of US$23.86 million. Their 52 week range is US$ 0.65-2.30.