Catalysts:
China has the largest eSport market in the world with $37.9 billion in revenues in 2018 (vs $30.4 billion for the US) and is growing at 25% annually.
Risks:
Antitrust probes on Chinese Big Tech
Volatility of Chinese emerging tech stocks
Chinese government has unfavorable opinion on gaming
Delisting of Chinese stocks on US exchanges
Financial Analysis:
Valuations
My personal Biases
1.4% of my portfolio - worst-performing investment
First invested as an arbitrage opportunity
Assumptions
Revenue growth of 15% annually for the next 5 years (17% annually from 2019 to 2021)
FCF margin of 8% on average (currently 12%)
Terminal Growth rate of 5%
Discount Rate of 15%
Exit Multiples Analysis
Based on Multiples of P/FCF in 2025
23% higher in bull case and 10% lower in bear case
10% shares repurchased in these 5 years
Conclusion
Stock undervalued with a 20% margin of safety, it would be fairly valued
Still a BUY but because of my exposure, I’m not going to buy more for the time being
