FansUnite: An Inflection Investing Pick

FansUnite Building the Future of Online Gaming

Today more than ever, investors need to focus on contextual clues and qualitative analysis in their investment research. Over the last couple of decades, technology and the internet have made financial information and quantitative research just a click away.

In the microcap space – where there are fewer analysts and institutional investors – we can sometimes find mispriced securities based on quantitative analysis. It’s a game of turning over rocks and seeing what’s underneath.  

In my experience, these “good finds” from a quantitative perspective are very high probability winning picks.  The upside, however, is limited without some qualitative factors looming in the near future to propel the company off of the venture exchange and onto the big board exchanges like the TSX and NASDAQ.

That’s where the big gains are made.  We get the tailwinds of Multiple Expansion as the company gets uplisted and more established.  Uplistings open up investment to a larger audience of investors, particularly investors that look to work into much larger position sizes like deep pocketed individuals, investment firms and other institutions.

That’s why I focus so much on visionary leadership in the microcaps.  I want someone at the helm with a vision and a plan to grow the company toward becoming a major player in the industry.

Several subscribers to The Momentum Letter have asked me to look into FansUnite – the Canadian iGaming and Software company looking to power gaming and gambling solutions of the future.  

In looking into Fans (CSE: FANS ; OTCQB: FUNFF) there are several contextual clues that point toward the company being capable of ditching the microcap moniker and getting onto the big board exchanges.

Below I cover a few of those clues in short detail.

Significant Institutional and Large Investor Demand in FansUnite

Despite seemingly being a lesser known Canadian microcap company there are significant clues pointing to the fact that Fans is on the radar of large and institutional investors across North America.

The first piece of evidence corroborating this is in their most recent financing.

On December 15th Fans announced they were looking to raise $5M for working capital and general corporate purposes.  Due to overwhelming demand that $5M was raised to $11M less than 24 hours later.  And that $11M raise ended up closing at $13.38M while still turning would-be investors away as there was no more headroom in the round.

Recap: Announce a $5M raise, 24 hours later upsize it to $11M and close $13.38M.  Enough said. Demand is there.

Further evidence of the pent up demand to grab a piece of equity in FansUnite is evidenced by what happened when they got an OTCQB uplisting in the U.S. last November.

Prior to that point Fans had been trading on the Pink Sheets.  And not all investors can access the Pink Sheet markets for one reason or another.

When Fans uplisted on November 16th there was an immediate and clear volume increase stateside.  Previously volume was hovering between 200-500k shares per day on the OTC exchange.  Immediately upon the upgraded listing volumes catapulted to over 3M shares per day.

Just to be clear, that volume was very heavy on the buy side.  Share price opened at 28 cents November 16th and by the 24th share price had pierced $1.00 and touched $1.07.

Even with the OTC uplisting there are potentially plenty of interested institutions that can’t invest until the shares hit a major U.S. exchange.

FansUnite Is a Small Company With a Big-Time Team Behind It

I’ve written about this on several occasions over the last year but it’s still worth going over again.  A primary way to mitigate risk in microcap investing is to properly vet the team (the CEO in particular) and their vision.

Behind FansUnite there is an incredible amount of experience, knowledge and industry success.

Harish Narayanan is the former president of PaddyPower Betfair (OTC: PDYPY) Asia, the world’s largest online gaming company.

James Keane is the founder of Paradise Poker (The O.G. Online Poker Site) and current CEO of King Show Games LLC.

Chris Grove is the head of the Sports & Emerging Verticals division at Eilers & Krejcik Gaming and a nationally recognized expert focused on market and policy forecasting for the legal US sports and online betting sectors.

Having any one of these three guys on the board of directors for a burgeoning iGaming and software company would be impressive.  FansUnite has all three.

Having such an impressive board of directors not only signals that these experts believe in FansUnite’s vision, it also provides confidence that Fans has the support they’ll need as they push to the forefront of the gaming industry in a sustainable and efficient manner.

And with that kind of support behind him it’s no wonder Fans’ CEO Scott Burton is emerging as an iGaming and gambling industry thought leader in North America as he led his company to have a seat at the table of the Canadian Gaming Association and has begun writing insightful commentary on the North American gaming industry.

What Is FansUnite’s Vision and Path to Success?

Ok, so we’ve established that Fans has the interest of large investors and the support of industry thought leaders.  How are they set to capitalize on the opportunity in front of them?

As a smaller company, Fans has the agility and talent to focus their efforts on the problems and opportunities that bigger companies don’t have the time or talent to address. To this end, Fans is innovating in a very significant way by making games and software that appeals to younger adults that keep players engaged throughout their experience.

I’ll come back to this point shortly, as that’s not all Fans is creating.

Fans is a full service gambling software and support provider:

• If an online poker room needs a sportsbook to tack onto their poker room, Fans can provide that.  
• If a sportsbook operator wants to add eSports betting to its offerings, Fans can provide that.
• If an existing sports discussion forum wants to add sports betting as an offering for its community, Fans can provide that along with the necessary licensing in some jurisdictions.  The forum would just need to sign the dotted line and do a deal with Fans to start monetizing its platform.

While Fans can offer just about any kind of software, licensing or support in the online gambling space they’re not coming to the market looking to compete with the major players.  Instead they are offering their software to casino operators as a service.  Having a full suite of offerings means they can fill in any gap for any given operator.

In addition to being able to fill in gaps for casino operators, Fans can bring betting options (and monetization) to many online communities with an existing user base like I mentioned in the third bullet point above.

Now, why would a casino operator or platform come to Fans for their gambling software needs?

Because Fans is innovating very engaging experiences for bettors. Their software keeps players engaged and entertained on the platform during sports or eSports events.

Take a look at their stream betting feature for eSports fans:

While an eSports fan is watching the game he/she has prop bets rolling in on the the right side of the screen every 30-60 seconds.

I can see something like this catching on for real sports games too.  It’s fun and engaging.  And even if the game action hits a lull one can stay entertained making silly side bets.  

I’ve spent enough time around the poker table to know that gamblers absolutely LOVE this kind of stuff.  If the action at the poker table gets slow gamblers will inevitably start betting on whether the next card dealt face up will be red or black.  To spice it up even more they’ll make a bonus, double-sized pay out if three in a row are the same color. That’s just the tip of the iceberg when it comes to creative prop bets offered when sitting at the table with fellow gamblers.

When gamblers love a betting option casino operators are going to be compelled to oblige them. This is what will get Fans’ foot in the door.  And once Fans has integrated with an operator’s systems it will be seamless to toggle on any other features the casino operators want installed.  Having a full suite of offerings makes Fans a one-stop-shop for any casino operator or any gaming platform looking to integrate new betting features.

FansUnite’s Business Model and Revenue Streams

Like I wrote above, Fans isn’t coming to the market trying to compete with the behemoth stalwarts of the industry.  Instead they are looking to offer services to them.

But Fans IS agile and opportunistic.  This is reflected in their business model.  They’re not coming in as competing casino operators in crowded markets.  They are, however, seizing the opportunity to be operators in underserved markets.

It’s best to break down Fans’ business model and revenue streams into three categories.

1.  B2C – Operating online casinos in underserved markets.  This not only generates revenues for their software development efforts, it field tests and validates those offerings for prospective B2B partners.
2. B2B – Offering their betting features and software to existing casino operators.  On this front Fans collects an integration fee, a minimum monthly recurring revenue and a revenue share of profits generated from their integrated offerings. Revenue-share in the casino business is a real blue-sky opportunity.
3. Askott Games – This is an arm of the business we haven’t touched on yet.  These are stand alone video-game-themed gambling games.  Think of them as the slot machines for the younger generation that prefer interacting with the game rather than watching spinning fruit wheels.  These also generate revenue share and are another blue-sky opportunity when a game gains popularity.

Fans has developed innovative software and gaming experiences and they are distributing and monetizing it in a very smart way.  

Offer software services to bigger operators in crowded markets. Do the same for jurisdictions with thickets of regulatory red-tape which would make market penetration as an operator expensive and difficult.  Then also set up shop in underserved markets and put their skills on display while generating revenues to offset the burn rate.

In short they’re getting their technology to market in the most efficient ways possible while generating minimum monthly recurring revenues and still keeping intact an uncapped upside with the revenue share monetization strategy.

What’s Next For FansUnite?

With the impressive software and technology Fans has already developed I look for them to start scaling from here.  Up until now all of their B2B marketing has been inbound. Now that the tills are full we can reasonably expect them to deploy a sales team and get their services integrated with more casino operators around the globe. 

The global connections of Fans’ board of directors and the demos of their very engaging software should get outbound calls answered and meetings scheduled.

As I covered in a recent post on Inflection Investing, tech and software businesses can scale very quickly.  And when they do much of the newly generated revenue passes straight through to the bottom line.  Fans is at that Impending Inflection Point juncture now. Their investment thesis is definitely worth a closer look.

I’ll follow up with a more detailed analysis of the three arms of their business model in the coming weeks.  In the meantime please let me know if you have any questions or topics you’d like to see covered in that follow-up. You can reach me in the comments below or send a message to my email or Facebook inboxes.

Bill McClain – Editor of The Momentum Letter
About the author.

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