X1 is Changing the Game - CSE:XONE

The global gaming industry has seen explosive growth over the last few years. In fact, the gaming industry alone earned more revenue in 2019 than the entire film and music industries, combined.

Part of the reason for this growth is due to the pandemic.


With more and more people being forced to stay at home for longer periods of time, many have resorted to gaming as their primary form of entertainment. As time has passed, a lot of these people have come to realize that online gaming can actually be a great way to stay in touch and have fun with friends, all from the comfort and safety of your living room. Another major reason why the gaming industry has grown so quickly is because gaming as a form of entertainment has expanded beyond those with just a controller in-hand. Nowadays, there are millions of people all over the world actually watching other people play video games online on live-streaming platforms like ‘Twitch’ and ‘Facebook Gaming’. This all might sound a bit crazy, but it has become wildly popular in recent years.


So, what exactly is Twitch?


Twitch is the world’s largest live-streaming platform. Twitch was acquired by Amazon in 2014 for $970 million and has seen tremendous growth since. Today, Twitch boasts a daily active user count of over 30 million. If you only know one thing about Twitch, it's probably that it is incredibly popular within the video game community. But over the years, Twitch has found more general audiences – both within other niche communities and the mainstream – which has transformed it into much more than a platform for gamers. Similar to how news crews upload live footage to your TV, people are uploading live footage of them doing everything from playing video games to painting and even eating food. These streamers, also called “content creators”, are able to interact with their viewers via a camera feed and built-in chat. A screenshot of a Twitch live-stream is shown below.

Once again, this all may sound a bit crazy, but looking at what certain content creators have been able to accomplish over the last few years is truly incredible. Through live-streaming, some content creators have actually built-up their own online brands and communities and have also garnered millions of followers (as well as dollars) in the process. Some examples of these creators are Dr. Disrespect, xQc, and Pokimane. Below is a list of the top 10 Twitch streamers who earned the most revenue from subscriptions in 2021.

Keep in mind that these figures do not include other sources of revenue for streamers such as advertising and merchandising. One of the world’s top streamers (xQc) is estimated to have earned over $5 million from Twitch in 2021.


An Opportunity to Change the Game


The emergence of streamers and content creators has created a more extensive and more substantial online community around gaming. “Beyond its already tremendous size, the gaming industry has had a significant global impact on entertainment and culture, spanning successful movie franchises, arena-based competitions, toys and more,” said Robin Murdoch, global Software & Platform lead at Accenture. “As we watch this influence expand, we’re seeing the emergence of gaming as an ecosystem of super-platforms where players can meet, communicate, watch live-streamed concerts, shop or listen to music.” It is clear that a major shift has occurred overall in the way that young people are consuming entertainment and it is also clear that this trend is here to stay. As more and more young consumers opt for niche platforms like Twitter, Discord, Twitch, and TikTok for entertainment, these consumers are becoming increasingly difficult to reach via traditional advertising methods such as TV and even Facebook. These methods are simply not as effective as they once were… and this is where X1 Esports and Entertainment comes in.


X1 ESPORTS AND ENTERTAINMENT: A GAMING & MEDIA PORTFOLIO COMPANY


X1 is a gaming and media portfolio company that helps connect brands with Gen-Z and millennial audiences all over the world through its diverse portfolio of in-demand assets. X1 plans to continue building upon its existing portfolio of assets through a combination of organic growth and accretive M&A.

X1 is poised to take advantage of overall growth in the gaming industry as well the proliferation of social media platforms like Twitch and TikTok through its unique business model which focuses primarily on acquiring cash-flow positive assets that are synergistic with the company’s existing portfolio.


A Highly Experienced CEO — Mark Elfenbein


As CEO at X1, Mark oversees the company’s operations, building on more than 20 years of experience leading rapidly growing companies in new emerging industries. To put it simply, Mark has made shareholders A LOT of money in basically everything he has ever done. FUN technologies was Mark’s biggest success. FUN went from a $20M market cap to eventually being bought out by Liberty Media for $484M - The cherry on top is that FUN Technologies was also a rollup in the media and gaming space, so very similar to X1. It is clear that Mark is no stranger to the gaming and media industry and Mark is not planning to reinvent the wheel with X1. Similar to FUN Technologies, X1 is also a consolidation play in the gaming and media space. So, Mark’s past experiences and knowledge from FUN should serve him very well at X1.


A Rollup Strategy in a Fragmented Market


At X1, Mark plans to consolidate multiple gaming and media assets under one roof, streamlining operations to unlock cost and revenue synergies and ultimately making the company an attractive takeover target for potential acquirers. Unlike the fast food industry where there are only a few major dominant players and high barriers to entry, the gaming industry is highly fragmented. In the gaming industry, there are thousands of small startups (websites, blogs, fan pages, online communities, etc) that have endless potential but very limited capital. These startups are usually founded and operated by young people who are experts in their respective fields, but may not have the technical, financial, or legal wherewithal to take their business ideas to the next level. So, by becoming a part of the X1 portfolio, X1 is able to give the founders of these businesses the support that they need to accelerate their growth trajectory and help them reach their full potential.


Recent M&A in the Gaming Industry


Recently, there has been a whirlwind of M&A in the Gaming industry. As of January 2022, Microsoft is set to acquire Activision Blizzard for a jaw-dropping $68.7 billion, and Take-Two Interactive is to acquire Zynga for $12.7 billion, both currently marked down as the two biggest deals in Gaming history. On the institutional side, more and more funds and investment firms are also getting on board with gaming. For example, Vancouver-based Aquilini Group, which owns the well-known NHL team Vancouver Canucks, invested a large sum into Enthusiast Gaming (TSX:EGLX) a few years ago. The company has since grown into a large network of Esports and gaming companies and boasts a market cap of over $500 million.


Now is the Time to Acquire and X1 has the Cash.


It is no secret that the markets are down right now. But there is an old saying, “the time to buy is when there's blood in the streets." This has never been truer for companies currently in the gaming industry — but only those with enough cash to buy. Due to markets being beat up so badly, there are a lot of high-quality gaming and digital media assets being put up on the chopping block. This represents a major buying opportunity for those companies that have cash, which not many do. With X1’s recent $3 million financing completed, the company has a war chest that it can use to acquire high-quality assets that may be temporarily distressed due to poor market conditions, for pennies on the dollar.


A Robust M&A Pipeline


X1 has a robust pipeline of synergistic assets that it plans to acquire. In fact, X1 has already signed agreements to acquire two of these assets in just the first few months of becoming a public company. This means a ton of active news flow and announcements in the near future. We will be keeping a close eye on X1 over the coming months as the company rolls out its acquisition strategy.


Share Structure


Share structure can either be what makes a great story succeed or fail. As for X1, the company took the IPO route (as opposed to RTO) so there is no legacy stock to chew through. The company has a very clean structure from day one and is also very forthcoming about their previous financing rounds which I also love to see.


Over the last two years there has been a founders round, a small round done at $0.05, $0.15, and $0.35, and the IPO at $0.45. Each financing round was a bit larger than the last and at a slightly higher price and also each round is locked up for longer than the one after it. The founders stock is actually escrowed over a 3-year period.


So, all-in-all, the structure here is pretty fair to investors coming in on day one and on top of that there will only be about 7.9M shares out for the first 4 months of trading, with 6.9M of those shares coming from the IPO (average cost of $0.45).