FaZe Clan Stock Forecast: Could It Go Like Other B. Riley SPACs After Merger?

Mohit Oberoi, CFA - Author
By

Jul. 20 2022, Published 8:23 a.m. ET

B. Riley Principal 150 Merger Corp. (NYSE: BRPM) stockholders have approved the business combination with FaZe Clan. The merger was completed on July 19, and FaZe Clan will begin trading on July 20 under the ticker symbol “FAZE.” What’s the forecast for FAZE stock and how have the previous B. Riley SPACs performed?

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The SPAC market has been almost dead in 2022. After making records in 2020 and 2021, the SPAC is making another record of sorts in 2022 where the majority of stockholders have been opting for redemptions. A lot of SPAC transactions have also been terminated amid the economic turmoil.

SPACs have been dead amid the crash in growth stocks.

The performance of de-SPACs has been disappointing. Most companies that have gone public through a SPAC reverse merger over the last two years trade below the IPO price. In many cases, the drawdown is upwards of 80 percent. Clearly, with such price action, SPAC investors have been apprehensive about staying invested and have instead been redeeming their units, which at least assures them of the SPAC IPO price plus any accrued interest.

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BRPM hasn’t disclosed the redemption numbers.

BRPM hasn’t disclosed the redemption numbers yet. However, in March, the two companies waived the minimum cash condition of $218 million. The move was done in anticipation of the massive redemptions, which have been a norm rather than an exception this year. Originally, FaZe Clan was expected to receive $291 million from the merger, which included a $118 million PIPE and $173 million in the BRPM trust account.

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How have previous B. Riley SPACs performed?

The performance of companies that merged with B. Riley SPACs has been mixed. While Eos Energy Enterprises is down over 70 percent from the IPO price, Alta Equipment stock is trading just above the IPO price.

The performance of esports companies has been terrible though. Allied Esports and Skillz now trade below $2 and are down over 80 percent from the SPAC IPO price. Paysafe, the fintech company, which is also a play in esports, trades below $2 as well.

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What’s the forecast for FaZe Clan after the BRPM merger?

The merger with BRPM valued FaZe Clan at an equity value of $987 million. FaZe Clan expects to post revenues of $91 million in 2022 and expects them to rise to $651 million by 2025. It has forecasted a 90 percent revenue growth CAGR between 2021 and 2025, which is impressive.

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Based on the forecasts, FaZe Clan is valued at a 2022 price-to-sales multiple of around 11x and a 2025 price-to-sales multiple of 1.5x. Like fellow SPAC merger targets, FaZe Clan is also a loss-making company and expects to turn adjusted EBITDA positive in 2023.

In 2025, FaZe Clan expects its adjusted EBITDA to rise to $131 million. That said, markets have been wary of forecasts provided during the SPAC mergers as many companies have missed these, at times for reasons beyond their control.

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The outlook for esports looks positive.

The outlook for esports looks positive and FaZe Clan has outlined an aggressive monetization plan. Four-fifths of the company’s audience is between 13 and 34 years old and it has a combined social media reach of $500 million.

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FaZe Clan plans to monetize the users through multiple platforms which include brand sponsorships, gaming, branded consumer products, and ad revenues through content. It also intends to replicate the strategy in international markets.

However, in the short term, FAZE stock will face the heat from the continued sell-off in growth stocks. Loss-making companies have been out of favor with markets and even FaZe Clan will have to cope with the poor macros as it starts its journey as a publicly traded company.

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