GMBL - eSports Entertainment Group Inc. (GMBL) - A Big Miss

Disappointing quarter. The company reported fiscal second quarter end Dec. 2021 net revenue of $14.5 million, which missed our mark by a significant 30%. Our Q2 revenue estimate was $20.8 million. Adj. EBITDA loss was $6.8 million, nearly double our loss estimate of $3.45 million.A convergence of negative factors. The first quarter-over-quarter revenue decline in more than a year was attributable to the following: the company ceased iGaming operations in the Netherlands due to a challenging regulatory environment, European sportsbooks had extremely low hold, and the Omicron variant caused the company to delay the launch of LANDuel and the opening of a Helix esports center in California.Fiscal full year guidance lowered. Management reset expectations for fiscal full-year 2022 revenue at $70 million to $75 million, down from over $100 million. Additionally, the expectation to turn cash flow positive has been delayed to fiscal 2023 from the previous guidance of Q4 of fiscal 2022. We are adjusting lower our fiscal 2022 and 2023 revenue estimate and raising our adj. EBITDA loss estimates.Cash burn ticks up. Cash burn is currently at $1.3 million per month, up from an average of $1 million per month in the previous quarter. Notably, the company has several financing options available with a $20 million ATM and a Shelf in place. While the company tripped debt covenants, management indicated that it has amended the agreement.Lowering price target. We are maintaining our Outperform rating, but substantially lowering our price target from $12 to $4. Our revision reflects the downward valuation for the industry and our lowered revenue expectations. We maintain our Outperform rating given the favorable risk reward relationship. Read More >>