GameSquare Q3 results show FaZe acquisition fills funding gap

Esports and gaming media conglomerate GameSquare holdings announced its financial results for the third quarter of 2023. The company’s revenue for the first three quarters totaled $35.2 million, up 38% from the same period in 2022.

While revenue is up, the holding company’s cost of sales and expenses have also gone up significantly. Its cost of sales climbed 83% to $24.8 million, leaving $10.4 million in gross profit. GameSquare’s expenses totaled nearly $24.3 million, up 28% from the same period last year. The majority of the increase was a result of salaries, consulting and management fees growing 81% year-on-year.

The company showcased these results in a Twitch stream on Tyler “Ninja” Blevins channel instead of a typical conference call. Ninja joined GameSquare as its chief innovation officer in February 2023.

Notably, GameSquare’s adjusted EBITDA loss is trending away from profitability. In the first three quarters of 2023, the company’s adjusted EBITDA loss totaled $10 million. This is up 37% from a loss of $7.3 million in the same period in 2022.

FaZe fills working capital deficit

Critically, GameSquare’s results revealed one of the underlying reasons why it acquired ailing esports and lifestyle organization FaZe Clan in October 2023. In its going concerns, GameSquare disclosed it needed about $16 million before the end of 2023 as its current assets could not cover its current liabilities.

GameSquare’s all-stock acquisition of FaZe Clan helps to solve this immediate problem. FaZe’s final financial report shows that the company lost about $36.6 million during the first three quarters of 2023. However, the esports and lifestyle organization still had about $34.5 million in current assets including $16.6 million in cash. With its $18 million in current liabilities, this leaves about $16.5 million for GameSquare to fill its working capital gap.

Similarly, GameSquare also sold its subsidiary Frankly Media’s radio business assets for up to $4 million to SoCast. GameSquare will take in $3 million once the deal closes and up to an additional $1 million based on performance.

Through its FaZe acquisition and its Frankly Media sale, GameSquare now has the resources to fulfill its payment obligations for the rest of the current year. Without additional funding, GameSquare now has about a year to turn a profit.

GameSquare going forward

GameSquare clearly sees acquisitions and consolidation as its path to profitability. On top of FaZe, the company acquired Engine Gaming in April. Engine’s subsidiaries included viewership analytics platform Stream Hatchet, creator discovery and CRM platform Sideqik and digital publishing and monetization platform Frankly Media. These tools will play a key role in boosting GameSquare’s profitability through vertical integration.

“Acquisitions are an important component of our strategic growth plan and support our efforts to quickly reach scale and drive profitability, while simultaneously creating a modern, end-to-end platform to connect global brands with gaming and youth audiences,” said Justin Kenna, CEO of GameSquare.

According to the report, GameSquare has removed $6.1 million of annualized cash operating expenses when comparing proforma combined results from Q1 2023 to Q3 2023.

“We are also benefiting from significant revenue synergies as we offer more services to more customers. A great example is the growth we are experiencing in performance marketing activations as we combine the science of Engine Gaming’s technology assets with GameSquare’s creative agencies. Performance marketing initiatives alone are expected to produce $8 to $10 million in annual revenue in 2024,” said Kenna.