Top Gaming Influencer Group FaZe Clan is now a small cap stock

When FaZe Clan, an esports company turned gaming lifestyle agency, went public last year, it claimed to be worth $700 million ($AU992 million). Just six months later, it’s only worth a fraction of that. Whether it’s the controversy constantly swirling around some of its members or the fact that the esports bubble has finally burst, no one wants to buy FaZe Clan, it seems, potentially turning one of gaming’s biggest bets into a complete bust.

On January 20, the stock price fell below $1 for the first time. It continued to fall over the past week and is now just north of $0.80. If things continue like this for more than a month, FaZe Clan will be completely delisted from the New York Stock Exchange. It is now effectively a penny stock (Editor’s note: In Australia, penny stocks are called “small-cap stocks” or “micro-caps” – David)and a ticking time bomb. Last September, FaZe Clan reported $43.9 million ($AU62.2 million) in cash. Forbes recently projected it would likely run out before the end of 2023. The business was never profitable, but now it’s even worse: a business that no one can convince one day it will be.

Founded in 2010, FaZe Clan includes professional teams competing in esports ranging from Duty until Smash Bros. and individual players garnering millions of subscribers on Twitch and YouTube. As esports rode the wave of genuine fan enthusiasm, inflated by investor hype, purses for competitive gaming events exploded. At the same time, fans flocked to watch their favorite players chill on Twitch and YouTube and perform everything from trick headshots to bumbling around a Hollywood mansion called the Clout House.

Screenshot: Google / Kotaku Screenshot: Google / Kotaku

However, the real money has always been in advertising, and FaZe Clan’s gamble was that it could successfully sell its members’ massive social media following to other brands desperate to reach out to Gen Z and their younger siblings. The group has collaborated with big names such as Snoop Dog and Pitbull. And in June 2021, FaZe Clan tried to convince the money people that it wasn’t just a bunch of dudes playing video games by appearing on the cover of the recently stripped Sports illustrated.

Four months later, it announced plans to raise nearly $300 million ($AU425 million) in cash and go public through a Special Purpose Acquisition Company (SPAC). A valuation of $1 billion ($AU1.4 billion) was tossed around in press reports, but none of it made sense. “Feels all hype and no sauce,” esports journalist Jacob Wolf wrote at the time. Maybe that’s why FaZe Clan used a SPAC, what in the words of The Wall Street Journal is a clever legal fiction for making business projections “not allowed in traditional IPOs”. FaZe Clan eventually raised about $291 million ($AU412 million) from financial firm B. Riley and went public in July 2022 for just $725 million ($AU1.02 billion). “Obviously it’s still in its infancy and most organizations are still trying to figure out how to actually make money,” one analyst told CNBC at that moment.

“The company has explored a number of ventures outside of video games,” The Washington Post said in an interview with Lee Trink, CEO of FaZe Clan, after the company went public. “Gambling, virtual dining and haunted kitchens, fan clubs and subscription models are some of the potential revenue streams the company is exploring, according to Trink.” Six months later, FaZe Clan is still exploring. There are partnerships with McDonald’s and Xfinity, member Kris “FaZe Swagg” Lamberson signed an exclusive deal with YouTube, and Gregory “SlurpeeG” Sabia was signed to a new FaZe team for Apex Legends.

Atlanta FaZe celebrates after defeating Toronto Ultra in the Call of Duty League Championship Final at Galen Center on August 22, 2021 in Los Angeles, California (Photo: Michael Owens, Getty Images) Atlanta FaZe celebrates after defeating Toronto Ultra in the Call of Duty League Championship Final at Galen Center on August 22, 2021 in Los Angeles, California (Photo: Michael Owens, Getty Images)

The approximately 100-member group is also far from controversial. In 2021, the FaZe name was rocked by an alleged crypto pump-and-dump scheme that saw multiple members kicked out or suspended. Then-member Talal “Virus” Almalki disavowed the company’s pride statement for 2022 before eventually leaving of his own accord. Member Evan “Cented” Barron was also fired last year after a clip surfaced of him using the n-word. And in July, the same month the company went public, Atlanta FaZe, one of the top competitors Duty teams, had to publicly apologize for a misogynistic tweet about getting women drunk.

However, it would have been good if news hadn’t broken in the early fall of last year that 1) $71.4 million ($AU101 million) in loans to FaZe Clan failed to materialize and 2) 92 percent of the shareholders intended to redeem their shares once the waiting period has expired. The share price went from $14.75 ($20.90) on September 26 to less than $5 ($7.10) a week later. The sale lasted until the end of the year. FaZe Clan board director Lewin Nick appears to have just dumped millions in stock last week.

FaZe Clan reported $52 million ($AU73.6 million) in revenue in 2021. That same year, it reported $37 million ($AU52.4 million) in total losses. It seems likely that it will have lost even more money by 2022. Trink was asked when FaZe would become profitable by The Wall Street Journal last August. “You know, look, I wouldn’t plant a flag on a date,” he said. “I can tell you that breaking even and then becoming profitable is an absolute priority. And so I think we’ll get there in the not-too-distant future, as we just scale the business, as we create greater revenue opportunities, and you’ll see the trend continue in the right direction.

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