Esports companies continue to keep Nasdaq’s Listings Qualifications Department busy. This time, Indian collegiate esports market-focused Mobile Global Esports received a notification letter due to not being in compliance with Nasdaq listing requirements less than a year after its July 2022 $6.9M USD initial public offering (IPO).
Never heard of Mobile Global Esports, a Nasdaq-listed esports company? It probably evaded your attention by virtue of being a zero-revenue company looking for opportunities in a foreign market space. Nevertheless, Mobile Global Esports joined a growing list of Nasdaq-listed esports companies falling out of compliance with the stock exchange, which includes FaZe Clan, Allied Gaming & Entertainment (formerly Allied Esports Entertainment), and Motorsport Games.
Mobile Global Esports was formed in March 2021 by Sports Industry of India, an American marketing and sports promotion agency operating in the Indian market. Mobile Global Esports is a spin-off of Sports Industry of India’s collegiate esports program that was launched in 2016 and is built around an exclusive 10-year renewable agreement with the Association of Indian Universities (AIU), an academic and sports body that represents 854 universities.
In 2019, the program’s first esports championship was held at Lovely Professional University (a private university in Phagwara, India) in 2017. The program produced two more esports championships in 2018 and 2019 before being put on hold due to the Covid-19 pandemic. Following the formation of Mobile Global Esports, the program was reinstated and organized 27 esports tournaments in India between May through December 2021. Through the 2022-23 academic year, Mobile Global Esports scheduled another 54 events. Mobile Global Esports’ IPO and subsequent $5M private investment in public equity (PIPE) diluted Sports Industry of India’s stake in the company to a 12.98% minority interest as of Dec. 31, 2022.
Despite a growing number of esports events organized, Mobile Global Esports has been unable to generate any revenue since its formation in March 2021, resulting in a net loss for 2021 and 2022. While the company’s management expects to commercialize its events through sponsorships, advertising, subscription, ticketing, branded merchandise, and fees it has been unable to prove the feasibility of its business plan yet. As a result, Mobile Global Esports generated a net loss of $1.29M in 2022 and a net loss of $262K in the almost 10-month period from its inception on March 11 to Dec. 31, 2021.
Consequently, Mobile Global Esports has been burning through the proceeds of its IPO and PIPE. Of the $11.90M the company raised, it received approximately $9.84M after expenses and fees associated with the IPO and PIPE. As of Dec. 31, 2022, Mobile Global Esports had a cash position of $7.54M left, enough to meet the company’s cash, operational, and liquidity requirements for approximately 18 to 24 months, according to its management.
While Mobile Global Esports isn’t making headlines in the esports industry, the market did take notice of its burn rate and lack of revenue resulting in the company’s share price decline. Mobile Global Esports’ share price closed at $11.19 on its July 29, 2022 market debut, valuing the company at $228.5M. The next day, the share peaked at an all-time high of $20.74—a market capitalization of $423.5M—but closed its second day of trading at $12.98, a harbinger of things to come. Within a couple of weeks, the share was trading below its IPO of $4 and since Feb. 24, the Mobile Global Esports stock was unable to maintain a minimum per-share price of $1.00. As a result of the stock trading below $1.00 per share for more than 31 consecutive days, Mobile Global Esports fell out of compliance with the Nasdaq’s listing requirements.
In accordance with Nasdaq rules, Mobile Global Esports has been set an ultimatum of 180 calendar days or until Oct. 9 to regain compliance with the Nasdaq’s minimum share price rule, otherwise, the company could be delisted. To regain compliance, Mobile Global Esports’ shares must close at $1.00 or higher for at least 10 consecutive trading days. The most common strategy to regain compliance with this specific Nasdaq listing rule is performing a reverse stock split.
At the time of writing, Mobile Global Esports trades at $0.76 and has a market capitalization of $15.52M. While just a fractional amount of where the share was in the first two days of trading, it can still be considered over-priced. One of the primary factors analysts usually take into account when evaluating a share’s price is the price-to-sales ratio (also known as revenue multiples), which compares a company’s share price to its revenue. In Mobile Global Esports’ case, that ratio is infinite – for comparison, the average price-to-sales ratio in the U.S. entertainment sector was 2.47 as of January 2023, according to data compiled by Aswath Damodaran, a Professor of Finance at the Stern School of Business at New York University. On top of the company’s lack of revenues, Mobile Global Esports only had assets worth $9.26M as of Dec. 31, 2022, a difference of more than $6M from its current market valuation, and the company’s whole business plan is dependent on a single license.
Judging from these three aspects, Mobile Global Esports is essentially worth the cash left in its bank account (its fundamental value that is decreasing at the company’s burn rate) plus the speculative factoring of future return on investment. However taking the company’s history into account, the current share price’s factoring in short-term growth seems unrealistic, therefore, over-priced. Nonetheless, Mobile Global Esports’ management still has some financial leeway left to prove its business concept by monetizing the Indian collegiate esports market with an approach that has worked for the American collegiate sports system. However, Mobile Global Esports needs to start generating revenue yesterday, only then it might have a chance of surviving on the Nasdaq, generating returns for its investors, and making enough of an impact in the esports industry to warrant you paying attention to the company.