Guild Esports is selling 40% of its stock in an initial public offering (IPO) on the London Stock Exchange (LSE) next month. Institutional investors will have first pick. And the remaining stock is up for grabs afterwards by individual investors.
Co-founded by David Beckham, Guild Esports hopes to raise £20m to recruit new players and invest in growth. The online games organisation intends to build a global sports franchise, modelled on the English Premier League. It will also be the first e-sports franchise to be listed on the LSE.
Moreover, the IPO gives investors the opportunity to potentially grow their wealth with David Beckham in an exciting and expanding market.
Is the stock a buy when it trades?
This will depend on the optimism surrounding the firm and whether buying in an IPO is a good idea.
The market for Guild Esports
The market for watching players video gaming exploded from 134m global viewers in 2012 to 443m in 2019. Indeed, Newzoo, a games market insights company, is estimating a further 45% growth in viewers to 646m, and $1.55b global market revenues, by 2023.
Moreover, e-sports events can attract substantially more viewers than established sports events such as the Tour de France, or Wimbledon. And their popularity grew during the pandemic as we looked for new ways to entertain ourselves at home.
Guild Esports is aiming to be one of the top-10 e-sports franchises in this global market, and it’s leveraging Beckham’s influence and youth coaching experience to do so. Beckham’s involvement is crucial to the attractiveness of the brand to sponsors and for merchandise sales.
It’s appealing. But, is it a good buy at an IPO?
Buying shares at an IPO
There’s a common idea that buying shares at an IPO is a great way to build your wealth. Indeed, if you bought $1,000 of Microsoft stock in its IPO in 1986, the shares would be worth over $2m today.
Unfortunately, for every Microsoft, there’s thousands more firms that won’t make you rich. Moreover, many IPOs can end up being terrible investments. For example, Royal Mail’s IPO was priced at 330p per share. It’s worth 222p at the time of writing. A capital loss of 32%.
However, institutional investors will have the opportunity to buy Guild Esports shares at the underwriting price before they go on sale to the public. That is, if there are any left.
Guild Esports, despite the big name, is only a little company and it will have a relatively small amount of shares to sell. This could make them very valuable indeed for an institutional investor who can sell for a high price when demand for them reaches fever pitch.
Notably, a similar trend was seen with Royal Mail. Demand for the IPO caused the shares to surge up to 450p on the first day of trading to the public. I think the profits from this would’ve been mainly made by institutional investors. But, unlike Royal Mail, we have no way to know if Guild Esports stock is likely overpriced or not.
Guild Esports hasn’t yet produced a public set of accounts. It was only incorporated on 3 September 2019 and its accounts aren’t due until June 2021, long after the planned IPO.
Despite the market optimism, I’ll never know if any offering price is a cheap way to own a good business. I won’t be buying.
