NIP's listing: He Youjun handed in his entrepreneurial paper, and the market responded enthusiastically on the first day of listing, with a sharp rise of over 80%

On July 26th, NIPG.US (NIPG.US) was listed on Nasdaq, becoming the first Chinese e-sports company to go public. He Youjun, who serves as the Chairman and Co-CEO of the company, thus became the youngest Asian founder of a Nasdaq-listed company.

In this IPO, NIPG.US Group issued a total of 2.25 million ADS (American Depositary Shares) at an offering price of $9 per ADS, raising a total of $20.25 million.

The stock price rose by over 45% on the first day of trading, reaching a high of $13.12. The market performance remained strong on the second day of trading, with the stock price surging by 82.93% to a high of $16.75. The total trading volume for the day was nearly $100 million, setting a new record in the current market and making it one of the most successful IPOs of the year.

On July 29th, NIPG.US announced that underwriters partially exercised the over-allotment option, purchasing an additional 182,526 ADS at the initial public offering price of July 26, 2024. The underwriters' greenshoe option exercise also ended. This also indicates a high level of market recognition for the company's stock, with investors holding an optimistic view of the company's future development potential.

The high enthusiasm for NIPG.US is related to the high market expectations it had before going public.

As the "first Chinese e-sports stock," NIPG.US has a certain degree of scarcity. He Youjun, as the Chairman and CEO of the company and its largest shareholder, brings a significant amount of brand value. From an industry perspective, the global e-sports and digital sports industry is accelerating, and NIPG.US may be among the first to benefit, naturally becoming the focus of attention.

The official listing marks a new starting point for the company's development, which is of great significance to NIPG.US. I believe that its significance goes far beyond NIPG.US itself, as it also sends a healthy signal to the industry, which is highly valuable.

E-sports rising star He Youjun rings the IPO bell, "E-sports +" model is the key to enterprise value

Looking back at the industry's history, overseas listed e-sports companies have performed poorly in the past, as the capital market lacks sufficient trust in the potential of e-sports companies.

However, upon careful research, it is found that NIPG.US has significant differences in its business logic, which may be a key reason for its attractiveness in the capital market. According to the prospectus, NIPG.US has developed into a global comprehensive digital sports group with operations covering multiple markets in Asia, Europe, South America, and more.

This is primarily due to He Youjun's role as the "spokesperson" for the company, making two successful acquisitions in decision-making.

In 2020, V5 Esports Club completed a stock-for-stock merger with the veteran esports club eStar, leading to the establishment of NIPG.US. This acquisition also received support from Wuhan State-owned Assets, becoming one of the company's top ten shareholders. Prior to this, He Youjun founded V5 and within less than a year, secured over 100 million yuan in Series A financing, with multiple institutions co-investing, breaking the record for the highest single financing for an esports club at the time.

In early 2023, He Youjun completed the acquisition of the well-known Swedish esports club NIP, making it one of the largest acquisitions in the global esports industry. As a result, NIPG.US expanded its influence in overseas markets and further strengthened its competitiveness in esports team operations This lays a solid foundation for developing global business and helping overseas investors understand the company's business logic.

It can be seen that He Youjun has brought funding and resource support to NIP, playing a crucial role in strategic layout and market expansion, which has positively driven the company's growth and made the future more clear.

More importantly, unlike other esports companies that overly rely on club operations, He Youjun is not telling the old story of "pure esports", which allows NIP's valuation to be further enhanced.

According to the prospectus, NIP proposes an "esports +" business model. In the first stage, it will cultivate esports teams to gain popularity and brand influence; in the second stage, it will horizontally develop talent brokerage, event activities, and innovative businesses centered around esports, expanding diversified and sustainable sources of income; finally, it will explore new formats such as esports education, community marketing, esports complexes, IP licensing, game publishing, and esports hotels, completing the transformation from an esports company to a comprehensive digital sports company.

In summary, NIP will ultimately cover the midstream, downstream, and upstream of the esports industry, occupying a leading position in various core links, thereby enhancing its competitiveness. Moreover, NIP provides a good reference sample for the healthy development of the industry, where multi-scenario businesses can form mutual synergy and penetration, bringing sustainable growth opportunities to the company.

Listing at this time undoubtedly injects new momentum into the development of NIP's "esports +" model, accelerating the company's development and opening up more room for imagination.

Clear trend towards revenue diversification, sustainable growth driven by business innovation

From NIP's performance, the company's revenue has shown a trend towards diversification, and the "esports +" business model has been preliminarily validated.

According to the prospectus, the revenue in 2023 is $83.7 million, a year-on-year increase of 27.2%. Among them, esports club operations, talent brokerage, and event activities account for 25.9%, 62.9%, and 11.2% of total revenue, respectively, showing that NIP does not rely on a single business. NIP's overall gross margin and the gross margins of its three main businesses are steadily increasing.

Furthermore, the potential of the "esports +" model is considerable, and the market will have higher expectations for the company's growth.

A previous report from CICC pointed out that the esports industry gradually entered comprehensive sports events after 2018. Its core value lies in the maturity and improvement of the industry chain, the extension of the main product life of games, and the diverse development of commercial scenarios driven by "esports +" (exploring markets such as culture, digital, automotive, etc., around events). In short, the "esports +" approach will unleash unprecedented commercial value in the esports industry.

Breaking down NIP's various stages for analysis:

In terms of esports club operations, NIP currently has layouts for popular games on PC and mobile, including "League of Legends," "CS:GO," "Honor of Kings," "Rainbow Six Siege," "Rocket League," "Fortnite," and "Call of Duty Mobile." As the company continues to expand its esports teams, games with strong popularity, combined with the overall development of PC and mobile esports events, will continue to drive revenue growth for the company's business.

In the second phase of the "esports +" business model, it is now evident that esports has become a crucial traffic entry point and brand promotion channel for NIP, providing solid support for talent brokerage and event business.

According to the prospectus, as of December 31, 2023, NIP has 16 million followers on global social media platforms. With online artists signed under talent brokerage contracts, NIP has nearly one billion global fans. Notably, as a partner and beneficial shareholder of NIP, Wang Jiaer has approximately 33 million followers on Instagram, providing strong endorsement for the company's talent brokerage business.

These abundant resources held by NIP also possess strong scarcity, giving the company a unique competitive advantage and brand strength in the industry, thus elevating the company's commercialization to a higher level.

Today, esports is not only about events but also about entertainment, social interaction, and media. As NIP continues to explore the third phase, empowering esports into other industries to refresh the industry, the company will have more diversified growth opportunities and development potential.

For example, by introducing events, empowering traditional sports venues, promoting digital sports; using esports concepts to transform traditional shopping centers. With the completion of cultural esports centers in cities like Shanghai and Wuhan, NIP can seize more opportunities in event venues, esports hotels, retail, and other commercial areas.

Reports show that the economic benefits generated by esports events at the Hangzhou Asian Games were approximately 260 million yuan, including related industries such as catering, culture, and tourism, with esports hotels being the biggest beneficiaries. This demonstrates the horizontal driving effect of the esports industry on industries, and NIP's adherence to the "esports +" business model will likely lead to early benefits.

Furthermore, collaborations with hardware manufacturers, such as Intel, NVIDIA, and other well-known hardware companies, to jointly develop high-performance esports devices. With AI support, PC and mobile shipments are gradually recovering, providing new incremental space for esports peripherals.

Therefore, as we can see, on one hand, thanks to diversified business and refined operational management, NIP has effectively controlled its total operating expenses, accounting for only 26% in 2023. This is much better than the North American esports brand FaZe Clan, which has "quantity over quality," with general and administrative expenses alone exceeding annual revenue.

On the other hand, adjusted EBITDA under non-GAAP accounting standards better reflects the company's true profitability. NIP's adjusted EBITDA is close to breakeven. In 2023, NIP's adjusted EBITDA was -$1.731 million, corresponding to a profit margin of -2.1%. Looking at the business trends, the company may soon achieve profitability.

Golden opportunity for value investment, benefiting from the continuous prosperity of the digital sports industry

From the perspective of value investing, what is the quality of NIP as an investment target?

Firstly, looking at the US stock market, there are signs of a recovery in the IPO market, with fundraising reaching a new high last year, further enhancing investors' confidence. The valuation of new listed companies is expected to increase. Unlike "pure esports" companies, NIP's growth and profitability based on business diversification may receive a higher valuation premium if valued according to digital sports companies.

Secondly, looking at the market, the global esports industry has exceeded a billion dollars, and the entertainment industry horizontally driven by it undoubtedly far exceeds the esports industry itself, with a market space potentially reaching hundreds of billions or even trillions. NIP cited a report from Frost & Sullivan stating that the global esports gaming industry is expected to reach $57.9 billion in 2022.

According to the "2023 China Game Industry Report," by 2023, the global game market is expected to be around $184 billion, with a user base of approximately 3.38 billion people. This means that NIP targets a large potential user base, laying the foundation for business expansion. The audience size of some popular esports projects is already comparable to traditional sports projects.

Today, the market awareness of esports is still increasing, and the industry scale is continuing to expand. From popular hit games like Peace Elite and the League of Legends World Championship tickets being in high demand, to the "inclusion of esports in Asia," research data shows that more netizens are shifting from "not recognizing" esports to "recognizing" it in 2023.

On July 23rd this year, at the 142nd IOC Session in Paris, France, a resolution was unanimously passed to hold the first Olympic Electronic Sports Games in Saudi Arabia in 2025, marking a higher level of recognition for esports. This will lead to a broader awareness of esports among the general public.

Thirdly, looking at the business aspect, NIP will achieve fusion development through the "esports +" model, integrating "esports + entertainment, esports + cultural creativity, esports + education," etc., bringing a significant long-tail multiplier effect to economic development. This will drive the digital sports industry economy and lead to rapid development.

As China's gaming and esports industry accelerates its international expansion, NIP has already expanded and operated in Asian, European, and South American markets. The prospectus also mentions plans to enter markets in Southeast Asia, North America, the Middle East, Japan, and South Korea in the future.

All signs indicate that the global audience, influence, engagement, and potential investment opportunities in esports are continuously expanding. According to authoritative forecasts by Newzoo, the esports market in the Middle East and North Africa will grow rapidly at a compound annual growth rate of 15.1% by 2024, highlighting its strong momentum.

The construction of global esports industry infrastructure, the flourishing development of social media platforms like Instagram and TikTok, as well as the improvement of overseas streaming or live broadcasting platforms, provide a good development environment for the entertainment industry associated with the global esports industry. For NIP, its globalization has a solid development foundation Fourthly, looking at policies, cities across the country are enthusiastic about supporting the esports industry, with local governments proposing clear support measures and planning directions to provide strong guarantees for the landing and infrastructure construction of the esports industry. Among them, actively promoting the integration of esports industry with new technologies and the entertainment industry, encouraging enterprises to organize and operate esports events, ultimately driving the development of related industry chains.

According to a Frost & Sullivan report, the market size of the esports gaming industry has grown significantly at a compound annual growth rate of 15.2%, increasing from $29.8 billion in 2017 to $52.6 billion in 2021 (approximately 381.9 billion RMB), and is expected to further increase at a compound annual growth rate of 12.1%, from $57.9 billion in 2022 to $102.4 billion in 2027.

Some analysts pointed out that "under the huge base of esports users, Chinese esports has entered the stage of cultivating user emotions, developing commercial value, and operating in segmented markets."

Therefore, under the influence of multiple positive factors, the "iceberg under the water" of the esports industry has not fully emerged.

As esports moves towards refined operations in the future, resources will be concentrated towards industry leaders. With the release of consumption demands from downstream user groups, it may be a natural thing for NIP to reap profits. In the future, with the upgrade of technologies such as AR/VR, Web3.0, the development of the esports industry will show more possibilities, and NIP may never lack opportunities.

Conclusion

After going public, He Youjun and NIP's growth story will continue. From mergers and acquisitions, to exploring the "esports +" model to break through the bottleneck of traditional esports companies, and now successfully going public, He Youjun will gradually build NIP into a sustainable growing digital sports enterprise. With the support of the capital market, He Youjun will have more funds to invest in business expansion and technological innovation.

For investors, whether looking at the horizontal driving effect on the industry or the vertical timeline, the esports and digital sports industry is a "long slope with thick snow," with a clear outlook. Focusing on NIP, it naturally becomes a growth player in the potential track, and its long-term value is worth looking forward to