This is a really good post mate and you make very good points. I have opinions on a few of them and only time will tell how it plays out.
Firstly, I don't know what licensing Emerge have engaged in, but I have come to the same opinion as you that their strategy involves laying a foundation with Miggster Mobile to provide cashflow and an asset to allow leveraging and to demonstrate market demand to negotiate deals with publishers and pursue Azure deployment.
Before we climb Everest, thinking just about Miggster Mobile, I think this alone will be responsible for multiple re-rates and a decent revenue stream, alongside increasing MTN Arena subscriptions. So while I admit that the next phase with Miggster Premium is an ambitious one, I think that the company is being responsible and realistic in trying to form a market foothold and generate revenue in the near term with this venture before beginning the big climb. I completely agree with you regarding the competition in this space, its impossible to ignore that. What I would say is that the eSports industry is booming and the pie is so large that there are room for more players. Add to this the fact that even the big competitors are having issues with cloud streaming AAA titles, I think the timing is right to do this alongside a 5G rollout. Emerge have shown their acumen in this by forming early partnerships with telco (I believe the Emerge-MTN partnership was the first Gaming-Telco partnership from an australian company) and this is a big part of their strategy I believe. By partnering with the provider of the infrastructure, they stand to gain better results through product tests, and can leverage their relationship with the telco for improvements to quality of service. I fully acknowledge that their will be fierce competition, but this is no different from BNPL sector, which I believe is large enough for many players and will be profitable.
With regards to what Emerge offers in terms of uniqueness or originality, I would have to disagree a little. I also think you might under emphasis the addition of competition and prizes as a value add. I think that rather than just adding value you are essentially joining together three very popular ways people like to spend time For miggster mobile:
Social interaction and competition - tournament structures, rankings, chat, shared experiences
The earning of money and prized
Mobile gaming (which is a bigger industry than PC and console combined)
I think this combination provides an excellent product for a market clearly expanding and hungry for it. Emerge is really targeting mobile gaming with first launch, and then full IoT with the second launch. Imagine I have a massive home theater and smart tv (i wish) and streamed fortnite straight to smart tv with wireless keyboard and mouse. Then imagine being able to integrate VR/AR with it, seamlessly. That is what all the companies in this sector are trying to do, but are limited by bandwidth, which is why I think its excellent timing, 5G is imminent, and the sector has room for multiple players.
With regards to the countries they are initially marketing towards, I think there are many reasons for this:
I know if I was a company and I actually wanted to try and expand, I would have offshore interests in countries with more friendly tax structures than australia. We pay alot of tax here! So there are fiscal reasons I think to establish market footholds in SA. You mention that the larger competitors have reasons to focus on more profitable markets and I suppose you are right, however as a small company looking to emerge (bad pun I know) I think the strategy is right here, going straight up against big competitors on their home turf would hurt I think, we want to establish strong revenue streams and partnerships (telco, developers, ecommerce) before expanding there. Let me give my perspective on a few points you address: Cost to run - Consider my tax point above, thats a big cost saving there from operating in South Africa. Also, I think that Emerge's strategy is quite low cost, their cash burn has decreased over the last few reporting periods which gives me confidence in their money management and Miggster Mobile is all ready to go. As discussed we agree that they are likely planning to use revenue streams from Miggster Mobile to help leverage/fund the Miggster Premium venture, which means that chances of shareholder dilution are reduced and they have zero debt at the moment.
Profit margin is an interesting point - Miggster Mobile initial conversion rate, and subscriber numbers over the coming months will help answer this, as will the MTN Arena numbers. I will wait till these numbers come before we discuss the potential profitability of Miggster Premium.
Bandwidth - a really good point. I think this is one of the reasons Emerge partnered with MTN, the knowledge gained from having a close relationship with a telco during 5G rollout gives massive benefit for platform testing. Working together like this makes me feel really bullish about Miggster Premium success. If Emerge together with more telcos can rollout the platform and provide appropriate titles that are well tested and function well in selected 5G areas, with a view to scale the platform at the same time the infrastructure is laid out, they will beat competitors to the mark IMO. This is a key to their strategy and a vital one at that. I believe they have already tested streaming AAA titles with MTN over 5G and received good results, but I need to dig up the reference for that (been reading too much recently and haven't kept track of it all)
Now your next point, and fortnite is a great example. Look, if Microsoft want to stream games to SA then they will, you are quite correct, why would they do a deal with Emerge if they want to do it themselves, they will do whats best for Microsoft. As you said though, they likely have their eyes on bigger and juicier markets not within our reach, and are focusing their efforts there, so if Emerge come along and want to form a partnership with Microsoft to co-sell into South Africa or other markets, then its just in their favour to do so if the terms are favourable. Then in the future, if Microsoft want to have that market, then we may be a takeover or buyout target at a time during our development when we are seen as cheap by the big boys, but definitely more than we are worth now. Think about big companies like Microsoft letting smaller companies do the heavy lifting (establishing new markets in places deemed not profitable) and proving profitability, then the big boys make their move. Just IMO but this seems to be the way the world works, and it often works in the better interests of shareholders when things like this happen.
I understand you dont see that the addition of tournaments/prizes and competition is enough to entitle publishers of AAA titles - I agree publishers will want to see potential sales numbers. So we have to form a market foothold with the platform and establish demonstrable demand, scalability, partnerships with telcos, and acceptable fiscal terms for a deal. All of this is on the cards IMO, and it will be really interesting to discuss this with you further once we see subscriber numbers post launch and over the coming months as awareness builds.
I also think there is room for new publishers/developers making a deal with Emerge, and making a name for themselves. Imagine valve before half life etc - I think that new developers that are not as well known, need platforms to deploy their products, and once they gain exposure and popularity, sure maybe they will sign with bigger companies, but Emerge will have the IP for some duration of the time in the agreement before that happens. I understand I am not talking about AAA titles here, but a different discussion point.
One other point I am excited about, but it is very speculative, is if Emerge generates significant revenue from Miggster Mobile, MTN Arena, and other ventures, it may choose to either hire developers, or merge with a software development company so that it can own its own IP. An advantage here would be intimate knowledge of the platform as well as close relationships with telcos, so game development testing could be done more seamlessly and tested on multiple devices and in different environments. This is clearly speculation, but IMO Emerge will either form strong partnerships with publishers/development companies OR go their own way, or a bit of both. I personally love the idea of a young company like Emerge forming a few partnerships with telcos during 5G, a few publishers, building revenue, and then producing their own games! What a dream eh!
I would end with one point, I think that Miggster Mobile will stand up to being very successful on its own, and I am happy investing on this note alone. The prospect of Miggster Premium is ambitious but exciting, like you said, an Everest - a company maker. Nothing is for sure, lots of speculation, but it is good to see ambition from a young company like this and I am very excited.
I know we are all keen to see the plan for Miggster Premium and its hard to see how it all fits together without this, but the company cant release this until much closer to launch date IMO as otherwise it gives competitors massive advantage for disruption, manipulation and options to beat them on tenders or MOU's etc.
Thanks for your post and I am interested in your perspective, I am very much into game dev as well and love tech. Your post is definitely not a downramp and I enjoyed reading it. I guess to summarise, I see Emerge as an undervalued small player in the eSports field now, but with massive ambition, great leadership and an excellent strategy in terms of product choice and marketing. I also see the timing as perfect, which is so important, many companies with great ideas hit the market prematurely or too late and that makes all the difference. I think Emerge has deliberately timed this along with 5G, and will continue to keep close partnerships with the infrastructure industry. I think that we also need to be aware that mergers, takeovers and buyouts are always on the cards once we demonstrate profitability and attract the attention of competitors, so we don't have to get to the top of Everest alone, directly, without oxygen or a jetpack (okay enough analogies)
Sorry for the rant, and hope I gave my perspective on what you wrote, if I missed anything just pull me up on it. Also all of this is IMO, DYOR. I like to think of all the possibilities, but I invest on the most conservative estimates and try and plan for each case. Even with the conservative estimates, I still see our market cap as massively undervalued by 50-100M just from what will happen this year but that is just my projection, happy to hear others. It will become more meaningful to discuss valuation once we have conversion, and hear about subscriber number trends for MTN Arena and Miggster Mobile in the coming months and we can do some real revenue projections.
EM1 Price at posting:
13.5¢ Sentiment: Buy Disclosure: Held
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