World Chess [LON:CHSS] has set out with an intriguing mission – to boost the profile of the game of chess and unlock its commercial potential. It owns an exclusive license from the governing body for chess, FIDE, which it uses to operate the FIDE Online Arena site.
World Chess organises its own online tournaments and also sells branded chess sets and merchandise. It owns the World Chess Club in Berlin.
Faster game, more interest
We live in a world of shorter attention spans, so it comes as no surprise to learn that chess is seeing a resurgence with new game formats like rapid chess and blitz chess. But can you commercialise the game of chess when the core IP of the game cannot be owned or protected? After all, it has been around for centuries.
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There are an estimated 600m regular chess players globally with more than 60m chess games being played on a daily basis. In the UK, according to YouGov, around 13% of the population play chess regularly. Chess has not been commercialised due to a lack of television coverage (unlike poker), but the game is forecast to grow in popularity thanks to the faster format versions now being played.
There could be a case to make here, given the phenomenal growth in the number of spectators watching teams play video games. Can chess tap into the same dynamics?
World Chess is seeing CAGR of 43%
Impressively, World Chess has a forecast revenue increase of CAGR 43% between 2023 and 2025. Broker Allenby Capital puts a fair value on World Chess shares of 4.6p. H2 FY23 revenue increased 36% YoY to EUR 1.1m, thanks to a 153% growth in tournament revenue. Overall revenue has decreased by 16% (to EUR 2.3m) due to a weak first half. Gross margins are down 8% with gross profit off by 75%.
Since the start of this year World Chess has announced two funding agreements with existing shareholders with an aggregate EUR 2.3m committed. Almost three quarters of this cash is due to be received this year. The company have also received EUR 0.6m in early FY24 earnings thanks to a seven tranche subscription agreement valued at EUR 1.5m.
Allenby Capital is forecasting revenue growth for World Chess at a CAGR of 43% and reckons the company will benefit from strong growth across its core offerings, including its merchandise and chess club. Allenby Capital also forecasts World Chess gross margins are anticipated to grow in both FY24 and FY25. The broker expects the operating loss to decline to EUR 4m in FY24.
Allenby’s fair value implies a 30% upside. Valuing World Chess on an SOTP methodology indicates a fair valuation equivalent to 8.6x 2025E EV/Sales.
Lack of serious competition
World Chess benefits from a lack of serious competition: “World Chess benefits from its exclusive partnership with FIDE, thereby affording its online platform official status,” Allenby said in its recent note on the company.
“No company competes with World Chess across all four of its business segments, giving the company a unique advantage to leverage its brand across all its businesses and cross selling to customers.”
World Chess is currently targeting several online opportunities, including promoting its online platform to grow its user base, converting free to paid users, increasing the number of online tournaments, and building online events sponsorship revenue. It is also releasing an Android app later this year.
The online platform has played a key role in the company’s post-pandemic growth, as COVID hit the physical chess tournament world hard. Financially, World Chess suffered as a consequence of this. While the in-person events business has recovered since then – note that tournament revenue is up 153% – online user growth is what will be required to take the company to the next level.