On July 26th, Xing Jin Wei Wu (NIPG.US) was listed on NASDAQ, becoming the first Chinese esports stock, and He Youjun, the company's chairman and co-CEO, became the youngest Asian founder of a NASDAQ-listed company.

In this IPO, Xing Jin Wei Wu Group sold a total of 2.25 million ADS (American depositary shares) at a price of $9 per ADS, with a total capital raised of $20.25 million.

On the first day of trading, the stock price rose more than 45%, reaching a high of $13.12. On the second day of trading, the market performance remained strong, with the stock price soaring 82.93%, reaching a high of $16.75. The total trading volume for the day was nearly $0.1 billion, setting a new record for the current market, making it one of this year's most successful IPOs.

On July 29th, Eastern Time, Xing Jin Wei Wu announced that underwriters partially exercised their over-allotment option, purchasing an additional 182,526 ADS at the initial public offering price on July 26, 2024. The underwriters' greenshoe option exercise also ended at the same time. This also means that the market has a high degree of recognition of the company's stock, and investors are optimistic about its future development potential.

Xing Jin Wei Wu's high popularity is related to its continuous expectation by the market before its listing.

As the 'first Chinese esports stock', Xing Jin Wei Wu has a certain scarcity value. He Youjun, as the company's chairman and CEO, is also its largest shareholder, which brings a lot of traffic value. From an industry perspective, the global esports and digital sports industry is accelerating, and Xing Jin Wei Wu may be the first to benefit and naturally become the focus of attention.

The official listing is a new starting point for the company's development, which is of great significance for Xing Jin Wei Wu. In my opinion, its significance is not only for Xing Jin Wei Wu itself, but also for the industry, which is of great value.

Esports rising star He Youjun's IPO sounds the bell, and the 'esports+' model is the value fulcrum for the company.

From the history of the industry, overseas-listed esports companies have performed poorly in the past, and the capital market actually lacks enough trust in the potential of esports companies.

But after careful research, I found that there is a huge difference in business logic between Xing Jin Wei Wu and other esports companies, which may be an important reason why it is more attractive in the capital market. According to the prospectus, Xing Jin Wei Wu has now developed into a global comprehensive digital sports group with business covering multiple markets in Asia, Europe, and South America.

This is primarily due to He Youjun's role as the company's 'voice'. In terms of decision making, he has made two relatively successful acquisitions.

In 2020, V5 Esports Club completed a stock swap merger with the old esports club eStar, and Xing Jin Wei Wu was established. This merger also received support from Wuhan State-owned Assets and became one of the top ten shareholders of the company. Prior to this, He Youjun founded V5 and raised over 100 million yuan in Series A financing in less than a year, with multiple institutions participating, breaking the highest single financing record for esports clubs at that time.

In early 2023, He Youjun completed the acquisition of NIP, a well-known Swedish esports club, becoming one of the largest acquisitions in the global esports industry. As a result, Xing Jin Wei Wu has expanded its influence in overseas markets, further enhancing its competitiveness in esports team operations. This has laid a solid foundation for the development of global business and helped overseas investors understand the company's business logic.

It can be seen that He Youjun has brought financial and resource support to Xing Jin Wei Wu, and has played a key role in strategic layout and market expansion, forming a positive momentum for the company's growth, and its prospects are more clear.

What is more important is that, unlike other esports companies, which rely too much on club operations, He Youjun is not talking about the old story of 'pure esports', which makes Xing Jin Wei Wu's valuation further increase.

According to the prospectus, Xing Jin Wei Wu proposes the 'esports+' business model. In the first stage, it will cultivate esports teams to gain popularity and brand influence; in the second stage, it will develop talent brokerage, event activities and innovative businesses centered around esports to expand diversified and sustainable sources of income; finally, it will explore new formats such as esports education, community marketing, esports complex, IP authorization, game publishing, and esports hotels, and complete the transformation from an esports company to a comprehensive digital sports company.

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

At this time, the IPO undoubtedly injects new momentum into the development of Xing Jin Wei Wu's 'esports+' model, and the company's development will further accelerate, opening up more imagination space.

The trend towards revenue diversification is clear, and innovative business brings sustainable growth.

Judging from the performance of Xing Jingweiwu, the company's revenue has shown a trend of diversification, and the "esports+" business model has been preliminarily verified.

According to the prospectus, the revenue in 2023 will be $83.7 million, a year-on-year increase of 27.2%. Among them, esports club operations, talent brokerage, and event business respectively account for 25.9%, 62.9%, and 11.2% of the total revenue. Xing Jingweiwu does not rely on a single business. The overall gross margin and gross margin of the three main businesses of Xing Jingweiwu are steadily increasing.

Looking further, the "esports+" model has great potential, and the market will give the company higher growth expectations.

Previously, CICC research report pointed out that the esports industry has gradually entered integrated sports events after 2018. Its core value lies in the maturity and perfection of the industry chain, the extension of the main product lifespan, and the diverse development of commercial scenes driven by "esports+" (developing markets such as tourism, digital, autos, etc. around events). In short, the "esports+" approach will enable the esports industry to release unprecedented commercial value.

Analyzing each phase of Xing Jingweiwu step by step:

In terms of esports club operations, Xing Jingweiwu currently has layouts for popular games on PC and mobile, including "League of Legends," "CS:GO," "Honour of Kings," "Rainbow Six," "Rocket League," "Fortnite," and "Call of Duty Mobile."

As the company continues to expand its esports teams and the strong vitality of popular games, coupled with the overall development of PC esports and mobile esports events, this business will continue to grow.

In the second phase of the "esports+" business model, it can currently be seen that esports has become an important flow entrance and brand promotion channel for Xing Jingweiwu, providing solid support for talent brokerage and event business.

According to the prospectus, as of December 31, 2023, Xing Jingweiwu had 1,600 fans on global social media platforms. Comprehensive online artists signed under talent brokerage, Xing Jingweiwu has nearly 100 million global fans. It is worth mentioning that Wang Jia'er, as a partner and actual shareholder of Xing Jingweiwu, has about 33 million fans on Instagram, providing strong endorsement for the company's talent brokerage business.

These unique resources possessed by Xing Jingweiwu also have strong scarcity, giving the company unique competitive advantages and brand advantages in the industry, thereby taking the commercialization of the company to the next level.

Nowadays, esports is a sport, and its essence is also entertainment, socialization, and media. As Xing Jingweiwu continues to explore the third phase, empowering esports to other industries, and then refreshing 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. At the same time, with the completion of cultural and esports centers in cities such as Shanghai and Wuhan, Xing Jingweiwu can seize more business opportunities such as event venues, esports hotels, and retail.

The report shows that the economic benefits generated by the esports events of the Hangzhou Asian Games were about 0.26 billion yuan, including related industries such as dining, culture, and tourism, and esports hotels became the biggest beneficiaries. From this, it can be seen that the horizontal pulling effect of the esports industry on the industry. Xing Jingweiwu adheres to the "esports+" business model and is likely to be the first to benefit.

In addition, it can also cooperate with hardware manufacturers, such as cooperating with well-known hardware manufacturers such as Intel and NVIDIA to jointly develop high-performance esports equipment. Nowadays, with the support of AI, PC and mobile shipments are gradually recovering, and esports peripherals will have new incremental space.

Therefore, on the one hand, thanks to the diversification of business and fine management, Xing Jingweiwu's total operating expenses have been effectively controlled, accounting for only 26% in 2023. This is far better than the North American esports brand FaZe Clan, which has a focus on quantity rather than quality and had general and administrative expenses exceeding annual revenue. On the other hand, EBITDA adjusted for non-GAAP accounting standards better reflects the company's true profitability, and Xing Jingweiwu's EBITDA adjusted has approached breakeven. In 2023, Xing Jingweiwu's EBITDA was -$1.731 million, corresponding to a profit margin of -2.1%. From the business trends, the company may achieve profitability soon.

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

Returning to the perspective of value investing, as an investment target, what is the quality of Xing Jingweiwu?

Returning to the perspective of value investment, as an investment target, what is the quality of Stellar Performance?

Firstly, looking at the US stock market, there are signs of recovery in the IPO market, and the fundraising scale has reached a new high last year, which further enhances investors' confidence. The valuation of new listed companies by investors will be improved. Different from the "pure e-sports" companies, Star Esports has potential growth and profitability based on business diversification. If it is valued according to the valuation given by digital sports companies, it is expected to obtain a higher valuation premium. Products' structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.

Secondly, looking at the market, the global e-sports industry has a scale of over US $ 10 billion, and the entertainment industry brought by its horizontal drive undoubtedly far exceeds the e-sports industry itself, or even has a market space of hundreds of billions or even trillions. Star Esports quoted Frost & Sullivan's report that the global e-sports game market will reach US$57.9 billion by 2022.

According to the "2023 China Gaming Industry Report", by 2023, the global gaming market will be about US $184 billion, and the user base will be about 3.38 billion. This means that Star Esports has a huge potential user base, has the underlying foundation for business expansion, and the audience size of some popular e-sports projects has been comparable to traditional sports events.

Today, the market awareness of e-sports is still increasing, and the industry scale is expanding continuously. From popular games, such as Peace Elite and League of Legends, where tickets for the finals are not easy to get, to after "e-sports enters Asia," research data shows that more netizens have changed from "not recognized" to "recognized" e-sports in 2023.

On July 23rd this year, at the 142nd International Olympic Committee's full meeting held in Paris, the resolution on holding the first Olympic e-sports event in Saudi Arabia in 2025 was passed unanimously, marking that e-sports has obtained higher recognition. At that time, e-sports will be widely recognized in the general public.

Thirdly, looking at business, Star Esports will achieve integrated development such as "e-sports + entertainment, e-sports + cultural creation, e-sports + education" through the "e-sports +" model, which will bring a larger long-tail multiplier effect to economic development. The development of digital sports industry economy drives its rapid development.

China's gaming and e-sports industries are accelerating their going to sea. Star Esports has already opened up and operates in the Asian, European, and South American markets. It also mentions in its prospectus that it plans to enter Southeast Asia, North America, the Middle East, Japan, South Korea, and other markets in the future.

Various signs indicate that the global e-sports industry's audience, influence, participation, and potential investment opportunities are all continuing to expand. According to authoritative forecasts from Newzoo, the Middle East and North Africa e-sports market will grow rapidly at a compound annual growth rate of 15.1% by 2024, highlighting its strong momentum.

The construction of global e-sports industry infrastructure, the flourishing development of social media such as ins and TikTok, and the improvement of overseas streaming media or live broadcast platforms have provided a good development soil for the entertainment industry associated with the global e-sports industry. For Star Esports, its globalization has a solid foundation for development.

Fourthly, looking at policies, various cities across the country are keen to support the e-sports industry, and local governments have proposed clear support measures and planning directions to provide strong guarantees for the landing of the e-sports industry and the construction of base facilities. Among them, actively promoting the combination of e-sports industry and new technologies and cultural and entertainment industries, encouraging companies to hold and operate e-sports events, and ultimately driving the development of related industrial chains.

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

Some analysts pointed out that "under the huge e-sports user base, China's e-sports has entered the stage of cultivating user emotions, developing commercial value, and operating segmented markets."

Therefore, under the influence of multiple positive factors, the "underwater iceberg" of the e-sports industry has not yet been fully revealed.

As e-sports moves towards refined operations in the future, resources will concentrate on industry leaders. After the consumption needs of downstream users are released, it may be natural for Star Esports to reap profits. In the future, with the technological upgrades of AR / VR, Web3.0, and other technologies, the development of the e-sports industry will show more possibilities, and Star Esports may never lack opportunities.

Summary

After going public, He Youjun and the growth story of Star Esports will continue. From mergers and acquisitions, to exploring the "e-sports +" model to break through the bottleneck of traditional e-sports enterprises, and to successful listing today, He Youjun will gradually build Star Esports into a sustainable growing digital sports company. With the power of the capital market, He Youjun will obtain more funds to invest in business expansion and technological innovation.

For investors, whether to look at the horizontal driving effect on the industry, or to look at the vertical timeline, the e-sports and digital sports industries are like a "long slope of thick snow," with clear prospects. Focusing on Star Esports, it naturally becomes a growing player in the potential racetrack, and its long-term value is worth looking forward to.