The esports and entertainment company saw its shares sink after its listing, but how does the company make money, and what is its business?
FaZe Holdings, Inc. or FaZe Clan (NASDAQ: FAZE) is a U.S.-based esports and digital entertainment company which listed on the NASDAQ yesterday. This was following a merger with a special purpose acquisition company (SPAC) which valued it at $725 million. However, since its market debut yesterday, the company’s shares have dropped by 24% as investors remain wary of SPACs and are unconvinced of profits in the creator economy.
What is FaZe Clan?
FaZe Clan started its journey in 2010 as a collective of ‘Call of Duty’ players who rose to fame with trick shooting. Since then, it has grown to over 93 members, consisting of esports competitors and content creators. The company’s social creators have a combined following of over 500 million people across YouTube, TikTok, and Twitch. For comparison, Netflix has 220.6 million subscribers, while Disney+ has 87.6 million.
The current CEO, Lee Trink, joined the company in 2018 after being president of Capital Records — home of Kate Perry and Paul McCartney. 80% of the company’s audience consists of 13-34-year-olds. This young demographic opens FaZe up to opportunities that differ from traditional media outlets that rely solely on advertising revenue. The company expects its esports division to make up a minority of its revenue in the future, with plans to expand into gambling with DraftKings (NASDAQ: DKNG), play-to-earn gaming, and a delivery-only dining brand.
How are FaZe Clan’s financials?
In Q1 2022, Faze Holdings’ net income increased to $2.3 million from a loss of $587,600 in the previous year, translating to an earnings-per-share of $0.11. This saw the company’s cash almost double to $85,204 during the same period. While this may look very small, the company also has roughly $172.53 million in investment trusts. This revenue does not include the $400,000 the company’s Counter-Strike team won at the Intel Extreme Masters Tournament.
Is FaZe a good investment?
The company consists of young creators who target a young audience, which can cause public relations disasters. For example, four of its members were involved in a crypto pump-and-dump scheme, while another said an antisemitic slur while streaming on Twitch. FaZe is also subject to changing consumer tastes and trends, which switch rapidly among younger generations. It also has an issue with monetizing its huge following, but this is something that can improve with experience and the new resources at its disposal.
It is too early to tell if FaZe Holdings is suitable to add to your portfolio due to how recently it went public. If you are interested in the company, it is best to add it to your watchlist but leave it for at least two quarters. This is a general rule supported by MyWallSt as it will give potential investors a better idea of the company’s finances, which may be unpredictable due to the competitive nature of esports and changing trends. It is always important to think with a long-term perspective, as this will reduce risk and is more likely to lead to higher returns.