FaZe Holdings [NASDAQ:FAZE], the sports and lifestyle social media platform, went public through a SPAC deal 11 days ago. The stock has experienced massive swings, believed to be driven largely by short sellers. Influencer marketing has gained significant traction in recent years, proving it is more than just a short-lived phase. But whether FaZe is positioned for long-term success as a public company remains to be seen.
FaZe debuted as a public company on 20th July at USD13.15. Subsequently the company’s stock fell as low as USD8.92 and has risen as high as USD15 per share, with equally wild swings in the number of shares that have changed hands on any given day. The company closed the week (29th July) at USD13.09.
FaZe Holdings traces its origin back to May 2010, when a trio of high profile eSports players banded together and began posting videos of their game playing skills and tricks on YouTube under the moniker FaZe Snipping.
As additional members joined and broadened to include more eSports players, professional gamers, content creators and even a few celebrities, the channel was re-branded as FaZe Clan and morphed into a formal organisation by 2012. Today, the ‘clan’ boasts 93 members, including rapper, Snoop Dogg, who is also a member of its board of directors. Eighty percent of the company’s audience is comprised of 13- to 34-year-olds.
Souring on SPACs
The company’s SPAC listing was initially planned for the first quarter of 2022, and when that didn’t happen there was speculation that it would not materialize, particularly with investors having soured on SPAC deals given the poor performance of the majority of companies that listed this way in recent years. But on 20th July, members of the FaZe Clan took to Twitter to announce that they were now a NASDAQ-listed stock.
Influencer marketing is more than just a passing phase, with the market projected to be valued at USD2.85bn by 2025, according to market analysis company Market Research Future. And prior to its listing, FaZe Clan was ranked by Forbes as the fourth most-valuable eSports company – momentum its owners are, no-doubt, hoping to continue.
“They are one of the only organizations in gaming that has a diverse enough portfolio of revenue to not solely rely on eSports and/or paying top dollar to bring in creators,” said Chris Mann, SVP of gaming marketing agency REV/XP, which is the current gaming agency of record for Chipotle.
“FaZe already has one of the most passionate and engaged communities and it will be key to see how they continue to innovate to monetize this fandom,” he said, pointing to FaZe Subs, the company’s recent partnership with DoorDash to offer specialty sandwiches created by chef and TV personality Eric Greenspan, as an example of the company’s innovation.
“Overall, given FaZe’s relevancy in extremely saturated marketplace and their continued ability to position themselves as a driver of culture while partnering with to brands, FaZe Holdings should continue to grow long term.”
But not everyone is as certain about the company’s ability to sustain its popularity for the long haul.
“It’s hard to say whether shareholders will be rewarded for believing in companies like FaZe,” said Mark Chen, a former mutual fund analyst and the founder of educational investing website Investing Long Term.
“Social platforms are fickle and changing, so just because FaZe is strong on Twitch doesn’t mean they’ll continue to grow if TikTok takes over. Another big issue is that the value with FaZe Holdings is from the influencers who are part of the clan. Key members could be involved in scandals that harm the company and lead to other people leaving,” he said, noting that games and eSport companies eventually lose popularity and die out.
“If your eSports organization is unable to jump to the next game, the company will run out of money and shut down. To maintain their popularity, eSports teams need to win tournaments.”
What are the risks of eSport companies?
Beyond the risk of poor or scandalous behaviour among FaZe’s core members, industry experts point to the fact that eSports organisations tend to be outliers when it comes to traditional shareholder stewardship and business operations. And then there is the fact that the popularity of influencer marketing has led countless new players to enter the field.
“eSports companies are easy to replicate and homogenous, they therefore exist in a state of continuous competition for attention,” said Dennis Shirshikov, a professor of economics and finance at the City University of New York and a strategist at real estate technology and brokerage company Awning.com. “The ease with which you can start an eSports company makes the industry a bit risky. Companies will frequently emerge and look promising, only to be completely irrelevant a few years later. As a former semi-professional eSports player himself, Shirshikov believes there is long-term potential to eSports companies, but he notes that just like traditional sports take time to gain deep, long-term followings, the same will be true for eSports.
Initially valued at USD1bn in October 2021, FaZe Holdings’ SPAC deal ultimately closed at a value closer to USD725m. In its initial day of trading, when just over a million shares changed hands, the stock closed at USD9.88, 25% below its opening price. The stock’s USD15 peak on 25th July is believed to be due to retail investors looking to put a short squeeze on investors shorting the stock, with more than 11.5 million shares changing hands that day. Since then, the stock has trended in the USD12 range, closing its most recent day of trading on 29th July at USD13.09.
Whether the popularity of FaZe Clan’s members can sustain the business long-term is something investors need to consider when deciding if they want to make a long-term bet on its stock. Harry Turner, a former hedge fund manager and founder of The Sovereign Investor, is optimistic about the company’s prospects. “The creator economy is here to stay, and eSport companies like FaZe are at the forefront of that… it’s not just a phase – this generation is truly passionate about creating and sharing content,” said Turner, noting that a recent study found that 45% of Gen Z-ers would rather make money as influencers than through traditional jobs.
“There is a growing interest in eSports among corporate sponsors. This provides eSports companies with a steady stream of revenue, which helps them to grow and thrive over the long term. So, all in all, the future looks very bright for eSports companies,” he said.