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FOCUS: Mail.Ru Grps acquisition of ESforce may trigger other investments in e-sports

By Yekaterina Yezhova

MOSCOW, Feb 12 (PRIME) -- An acquisition of ESforce, one of the major e-sports companies in the world, by Internet giant Mail.Ru Group for some U.S. $120 million may pave the way for other Russian companies to invest up to $400 million in cyber sports projects in 2018, analysts said.

The e-sports market continues to see very fast growth and in 2018 SuperData Research estimates the global market will be around $1.6 billion with some 300 million users. ESforce is one of the largest e-sports companies in the world, and is the largest in Russia and Eastern Europe, Mail.Ru Group said in a statement.

The group develops and releases game products on the local market and in the CIS. Its games division portfolio includes such popular launches as Armored Warfare: Armata Project, Skyforge, Legend: Legacy of the Dragons, and others with 95 million registered users worldwide.

Mail.Ru Group CEO (Russia) Boris Dobrodeyev said the global e-sports business continues to experience exceptional growth and could overtake the traditional sports market over the next decade.

The Internet company created a target investment division, called Mail.Ru Games Ventures, in April 2017 to inject $100 million in Russian and international games projects over the next two years.

Georgy Vashchenko, director of operations on the Russian stock market at investment company Freedom Finance, said that e-sports has been officially recognized in Russia with the Mail.Ru Groups acquisition of ESforce.

The audience of e-sports viewers is certainly less than that of fans of traditional sports teams, but is growing rapidly. It is now close to 400 million people and could reach 1 billion in the 2020s, he said in a research note.

At present I dont expect an investment boom in e-sports, big deals will be rare, but the trend of rising investments in e-sports will directly depend on the number of players and fans and monetization of the Internet audience. Perhaps, leading Russian IT companies would invest $300400 million in e-sports floors by the end of 2018.

Mail.Ru Group will pay for ESforce $100 million less debt in cash with the deal to be closed by April subject to third party approvals. The Internet group will also pay a further KPI related chunk of some $20 million at the end of 2018. ESforce is purchased from Anton Cherepennikov and Highland Falls Investment, whose beneficiaries were not disclosed.

ESforce owns two world-class clubs Virtus Pro and SK, 14 Web sites, 209 social media groups and video production studios, Media Cybersport.ru and Cybersport.com, as well as big e-sports venue Yota Arena in Moscow.

Vashchenko at Freedom Finance said the acquisition is a signal that virtual teams and computer games floors could also cost a great deal of money.

Investment company Sberbank CIB said: ESforce is expected to post revenues of around $36 million in 2018 and break even on EBITDA at the end of the year. ESforce has strong and successful team, making it well placed to penetrate the global e-sports market worth over $1 billion.

The e-sports market itself is a blue ocean and is gaining an increasing share of the entertainment market. We think the acquisition fits well with Mail.Ru Groups portfolio, given its gaming exposure and ownership of Russias largest social media platform.

In addition to a wide games portfolio, Mail.Ru Group owns the countrys three main social networks: VK, Odnoklassniki, and My World.

The analysts agree that the purchase fits Mail.Ru Groups development strategy, but some of them say the deal is overpriced and risky.

Investment company UralSib Capital, which affirmed its Sale recommendation for Mail.Ru Groups shares, said ESforce is not profitable yet despite its rapid growth.

The companys audience amounted to 116 million users in 2017, and the number of sessions stood at 440 million. In revenue, 80% are presented by advertising and rewards. Revenue for 2017 is expected at $19 million, which is a 150% increase on the year. The EBITDA loss was at some $15 million. As of the end of 2018, the company expects its revenue to rocket 80100% and the EBITDA loss to halve, UralSib Capitals analysts said.

Mail.Ru Groups investment in ESforce is even risky, they said. The price of the deal as compared to ESforces current financial indicators could be justified only by a sizeable growth and margins. This means that there are significant risks that return on investments will be insufficient, UralSib Capital said.

Vashchenko at Freedom Finance said that e-sports firms find it hard to raise investments, because donors are skeptical about business models and potential to monetize services.

If a Web site with the number of users of 120 million per year gets $19 million in revenue, there is something wrong with it. Growth potential thanks to users and advertising agencies, in my view, is at least 10-fold, Vashchenko said, referring to ESforces 2017 revenue.

However, brokerage BCS said the purchase price looks fair. ESforces revenue stands at 2% of Mail.Ru Groups 2017 revenue and could add 2 percentage points to the indicator in 2018, which, as we think, is the most important for the market, BCS analysts said. The deal looks a strategically justified step and should contribute to revenue growth in 2018.

In JanuarySeptember 2017, Mail.Ru Groups aggregate segment revenue spiked 35.2% on the year to 39.9 billion rubles, as calculated under International Financial Reporting Standards.

(58.1718 rubles U.S. $1)

End

12.02.2018 11:05
 
 
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