FaZe Holdings Inc: How one of the most popular organizations failed on the stock market and why it risks going bankrupt
Elen StelmakhIn the summer of 2022, the North American esports organization FaZe Clan announced the long-awaited merger of its business with the investment fund B. Riley Principal 150 Merger Corp. The club listed on the NASDAQ exchange at the same time, having issued common shares and its warrants under the tickers “FAZE” and “FAZEW”, respectively.
No one doubted the popularity of the FaZe Clan brand, due to which many predicted the great success of the deal and the long-term growth of the organization’s financial wealth. Of course, many people saw the negative example of Astralis that had been listed on the exchange three years before but FaZe Clan was and is worldwide popular.
However, the company faced big problems that led the organization to the state close to bankruptcy. As a result, FaZe Clan risks being left without money for a living in 2023. But before this, it is worth talking about all the difficulties the famous club has faced.
The volatility of FaZe Clan quotations on the NASDAQ exchange
Since the very beginning after the merger with B. Riley Principal 150 Merger Corp, the quotations of the organization fixed at the mark of +-$10 on the NASDAQ exchange. Their price rose to $13,02 at some moment but it dropped to $9,58 very soon.
However, this trend could be related to the recent appearance on the stock market, considering that the quotations skyrocketed and reached their peak of $20 in August.
But FaZe Clan did not have that much time to enjoy it because the price returned to $10 very soon. However, they managed to get back to the mark of $17-19 in a month, leaving little hope.
In autumn, the North American club filed the SEC form S1, in which it explained its intentions to issue new shares and also host a period of inside trades. The organization had published its financial report for the second quarter of 2022 before this and it can’t be ignored to evaluate further events.
On a set of factors, the FaZe Clan quotations rushed down to stop at the mark of $9,26 by the end of September. But it was not the end of the club’s adventures on the stock market because the company continued looking at the rapid drop of quotations.
The market situation got worse by the end of the year because the price of a single FaZe Clan share stopped at the mark of $2 in December. The company has to prepare for another shock that will happen in January. Employees and owners will be able to sell their shares, which might derail the quotations once again.
The reasons for the prolonged FaZe Clan crisis
Forbes has recently published an interesting article, which revealed some details of the North American club’s business. In particular, journalists have managed to find out the details of the agreement with the rapper Snoop Dogg and also shed light on the low profitability of the business.
In spring, FaZe Clan signed Snoop Dogg to get the rights to use the popular rapper’s brand. The public saw only the image advantages of this agreement but the financial reports and details of the agreement reflected the opposite.
As reported, the organization FaZe Clan agreed to provide Snoop Dogg with $1,900,000 in shares and a seat on the board of the company, and also each of his sons and companies controlled by his wife and manager with $248,000 in shares.
But it was just the beginning of the story that might destroy the “unsunk” business of FaZe Clan very soon.
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The new problems were revealed in September when the organization faced the strong volatility of the quotations that have rushed down. According to the official documents, Forbes journalists found that almost $71,400,000 of the initial investments of $100,000,000 were used inefficiently and lost.
The situation became even more complicated because 92% of the SPAC shareholders preferred to buy out their shares for cash during the merger but not convert them into new common FaZe Clan shares, due to which the organization lost $159,000,000 from its trust account.
Considering the weak quotations of the organization’s shares, it can count on a capitalization of just over $150,000,000. However, the club still has lots of other problems that are beyond “the adult games” on the exchange.
First of all, FaZe Clan is one of the biggest esports organizations in the world, with a fan base that has millions of fans. Secondly, the club signs big partnership agreements with famous brands and companies every year.
At the same time, FaZe Clan does not know how to generate profit, relying only on external investments. Let’s take a look at the numbers: the organization’s revenue amounted to $48,600,000 over the first three quarters of 2022 but only $14,000,000 of the sum was earned on advertisements and esports success.
What is coming up next for the organization?
There are no preconditions that FaZe Clan will be able to save its state on the stock market. The issue of new shares marks nothing good because this activity will just bury the company faster, considering the current price.
We can only hope for internal changes that must happen as soon as possible. First of all, FaZe Clan should find an opportunity for monetization. The recent reports reflect that the organization uses its assets horribly while the main focus is on content creation, marketing, and competitive activities.
However, you can’t predict victories at big tournaments. Now, the organization relies on a few disciplines, including Halo, CS:GO, Rainbow Six, Rocket League, PUBG, and FIFA. It is pretty simple to guess what roster brings the biggest profit for the club. There is no VALORANT on the list because FaZe Clan did not become a part of the partnership program and it risks dropping the discipline.
There are two directions left, one of which is content creation. The club has enough influences who can make money, working with partners of the club. However, it will be difficult for FaZe Clan to diversify its cash flows without new sponsors.
We can notice from the recent deals that the organization continues its development towards modern trends. Now, FaZe Clan tries itself in Web3, NFT, and metaverses. But these deals are unlikely to help the company get out of the prolonged crisis because even the biggest sponsors do not provide confidence in the bright future.
Summing up, the FaZe Clan’s idea to list on the stock market failed and the organization risks making its poor situation even worse in the upcoming months. As experts state, if the situation does not change, the club might go bankrupt in November, next year.
Of course, this scenario sounds unbelievable but FaZe Clan has been producing alarming news for half a year. The management might find the right steps and attract additional funding. But now, the organization is on the brink despite the greatness of its brand.
Elen Stelmakh is a creative individual dedicated to advancing gaming culture through articles and visual design. As a full-time EGamersWorld author and designer for a gaming website, Elen not only creates content but also infuses it with energy and creativity.