NIP Group files for IPO

Formed last year through a merger of two companies in China and Sweden, NIP has filed for an IPO in New York

Key Takeaways:

  • NIP Group has filed to list in New York, in a deal that could value it at around $250 million
  • The company’s revenue grew 27% last year, though that figure could be inflated due to a weak year-ago comparison in 2022 when e-sports took a hit during China’s pandemic

  

By Doug Young

After two false starts by its rivals, NIP Group Inc. is aiming to win the race to become China’s first listed e-sports company to cross the IPO finish line.

The firm, formed by a merger last year between Sweden’s Ninjas in Pyjamas and China’s ESV5, filed last week for a New York listing, without giving any fundraising target. But the prospectus did list the IPO’s underwriters, which totaled six, including such relatively well-known names as leading Chinese investment bank CICC, Europe’s Deutsche Bank, and the investment banking arm of Tiger Brokers, one of China’s leading online brokers.

The inclusion of so many underwriters, and some relatively big names, usually indicates a fairly large offering, since they will ultimately split the listing fees. But NIP looks quite small to be valued at anything higher than $400 million – a figure we’ll detail later – and that’s only if the company gets a relatively strong valuation.

Accordingly, we can’t see this listing raising more than $50 million, which begs the question of what kind of game NIP may be playing here.

The company is China’s third major e-sports player to attempt an overseas listing, hoping to win over investors with its relatively strong position in China and Europe. All three are eying a range of revenue sources, from basic e-sports team management to e-sports education, training and the sale of their IP to makers of other products like collectibles.

One of China’s biggest names, VSPO, backed by gaming and short video giants Tencent (0700.HK) and Kuaishou (1024.HK), was the first to test the IPO waters with its application to list in Hong Kong in 2022. But it later abandoned that effort, and last year accepted a nice consolation prize in the form of a $265 million investment from Saudi Arabia’s Savvy Games Group, the gaming investment arm of the country’s sovereign wealth fund.

Next up was NeoTV, which filed to list in New York early last year. But the company, whose annual revenue was quite small at around 100 million yuan ($13.8 million), never followed up and the U.S. securities regulator declared the application abandoned in February this year. 

NIP is quite a bit larger, reporting revenue of $83.7 million last year, up 27% from the $65.8 million it would have reported in 2022 on a pro forma basis.

Here, we need to point out that last year’s 27% growth rate may actually be a bit overstated, and might easily be below 20% in more normal conditions. That’s because 2022 was a miserable year for the industry, at least in China, as the country imposed numerous restrictions on travel and movement in general in a last-ditch effort to control the spread of Covid.

Accordingly, in more normal times NIP’s 2022 revenue would have been much higher, reducing the growth rate in 2023. NeoTV’s earlier prospectus reflected that reality, with the company’s revenue in the first half of 2022 down 32% from the year-ago period.

Fast-growing market

NIP is a slightly different fish from NeoTV, since it has a far more global footprint due to the Ninja Pyjama operation it acquired last year. At the time of the merger, the newly formed company said it had about 40 million followers worldwide, and that it aimed to become “a global comprehensive digital sports group covering the Chinese, European and South American markets.”

NIP and its peers are chasing a global e-sports market that was worth $52.6 billion in 2021, and is expected to grow 12.1% annually to reach $102 billion in 2027, according to third-party market data in the prospectus. The group is chasing just a small portion of that market, including: an e-sports club market worth $1.4 billion in 2021; an e-sports talent management market worth $2.3 billion in 2021; and an e-sports event production market worth $600 million in 2021.

The prospectus doesn’t break down NIP’s revenue by geography, but presumably the majority comes from the China market that is now its home base. The company is led by a youthful team of former ESV5 chief Mario Ho, just 29, as its chairman; and former Ninja Pyjamas chief Hicham Chahine, at a slightly older 35, as co-CEO.

Ho is noteworthy as he’s the youngest son of Stanley Ho, often called China’s “gambling king” for laying the foundation that would transform the city of Macau into Asia’s equivalent of Las Vegas. Ho’s pedigree could also explain why so many banks are eager to underwrite the deal. The rest of the company’s senior team looks a bit more seasoned, with its chief financial, strategy and operating officers all in their early 40s.

While its revenue is relatively small, NIP is becoming more efficient as it scales up and makes better use of its resources. Its gross profit nearly doubled last year to $7.2 million from $3.7 million in 2022. Its gross margin also improved substantially, rising to 8.6% from 5.7% over the same period, though neither of those numbers look especially impressive, reflecting the industry’s cost-intensive nature.

The company reported operating losses in both 2022 and 2023, and its net loss last year more than doubled to $13.3 million from $6.1 million in 2021.

For valuation, there are quite a few comparable companies to look at. Two of those, Denmark’s Better Collective (BETCO.ST) and India’s Nazara Technologies (NAZARA.NS) trade at price-to-sales (P/S) ratios of 3.4 and 5.3, respectively. A ratio at the lower end of that spectrum, which would price in a discount due to China’s high regulatory risk, would value NIP Group at a relatively modest $250 million.

The China risk element is quite large for local gaming companies, due in no small part to Beijing’s view that games are a waste of time and money and can even be harmful to minors. That’s resulted in periodic crackdowns involving measures like limiting how much minors can play each day, and limiting how much they can tip their favorite players.

At the end of the day, there’s no reason that NIP Group can’t become the first among its Chinese peers to cross the IPO finish line, especially now that earlier regulatory issues in the U.S. and China have largely settled. The bigger question will be whether any investors are waiting to buy its shares when it finally approaches that line.

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