If you are familiar with DraftKings (Nasdaq: DKNG), the online sports betting success story, you will love this new opportunity.
Mobile games platform Skillz Inc (leader in global e-sports) is looking to go public via a merger with a special purpose acquisition corporation (SPAC) called Flying Eagle Acquisition Corp (NYSE: FEAC). FEAC is headed up by CEO Harry Sloan, who helped take DKNG public in April this year.
The deal if voted through, requires 50% plus to be accepted, has an implied valuation of $3.5bn or 6.3 times its 2022 estimated revenue. To be clear the process is unique in that you get to take a view on the stock BEFORE its essentially taken public. In other words, it’s similar to an initial public offering (IPO) but without clarity on whether it will list or not, SPACS are similar to reverse merger’s and generally raise more money than standard Reverse Mergers at the time of the IPO.
Let me try to explain further.
If the deal goes through, then the so-called reverse merger via a SPAC will be at $10 a share and a valuation of $3,5bn. At present FEAC is trading at $13,75 per share with the market perceiving greater value in the deal prospects. This suggests the deal is likely to go through and is at a 30% premium to the so-called listing price. If the deal is voted down, then shareholders will receive their $10 plus interest of 30c = $10.30. Therefore, to be clear, there is deal risk involved here. More recently FMCI, a unique upstart similar to Beyond Meat listed via a SPAC under the name Tattooed Chef Inc (Nasdaq: TTCF) at around $10, and more recently ran up to $25 a share before being voted through. The stock is trading $22 a share as of Tuesday. In short, these SPACs are allowing retail investors an early opportunity to pay up for unique growth plays before all the big players get involved even if it is at a premium to the current listing price.
Now let us get into the numbers a bit and assess why this could be a big theme to play going forward. Skillz have proprietary technology platform that revolutionizes and democratizes the mobile gaming industry, enabling developers to monetize their games through competition and deliver experiences that players have come to love and trust. Skillz is expected to power more than 2 billion e-sports tournaments in 2020 alone and facilitate $1.6bn gross merchandise value (GMV) in paid entry fees for games hosted on its platform. Mobile is currently the fastest growing segment of the gaming market and is expected to grow to $150bn by 2025 from $68bn last year according to GlobalData. Skillz is in a position to compete for some of this market share. More recently, Tencent has made a strategic move to take a bigger stake in Zynga (Nasdaq: ZNGA), maker of online games and mobile games while Huya (NYSE: HUYA) and Douyu (Nasdaq: DOYU) have just merged in a deal that will make them strong contenders in the Asian gaming market, with the help of Tencent. The really unique prospect of Skillz vs Zynga and Gulu is its monetization rate, which is far superior, boasting a $6.30 vs $1.7 average revenue per monthly active user (ARPU).
Skillz has been making sure to patent everything that makes their platform unique and segment dominating. The company expects to have $250m after the deal closes and will use the proceeds to expand in the US and internationally. The deal is likely to be voted on before the end of October. We like the growth dynamics of this company and think they have a tremendous runway ahead of them to grow into. Another unique attribute which could help the growth prospects is the ever-evolving dynamics in how people are interacting due to COVID led lockdowns. In other words, we feel this name could really do even better as more and more countries get hit with a second and third wave of COVID-19. This forces more and more people indoors and more likely to find ways to be entertained online, including e- gaming.
Does this opportunity interest you? Would you like to find out about similar offshore opportunities?
Please feel free to contact our Sharenet Portfolio Manager, Dylan Bradfield for the Skillz/FEAC Sep’20 investor presentation or alternatively ask about our competitive trading rates for access to a personal Sharenet Portfolio Manager.
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