What happened?

Today, December 9th, a very much sought-after company has gone public and issued its awaited IPO (Initial Public Offering). The stock is listed on Nasdaq Nordic. The company, Astralis, or Astralis Group, has its roots in the esports/entertainment industry. It is mostly known for its Counter-Strike gaming team that has an extremely good track record in various gaming tournaments. No wonder investors are talking about the company and are seeking to take a piece of the pie. On the 13th of November, the company issued a prospectus for its IPO. It is publicly available for everyone to download.

Why is this important?

In general

IPO’s are a good way for a company to attract additional capital with little to no obligations. Companies can then use the proceeds of an IPO to fund various programs. Those can be ranging from investment to repayment of debt.

The global IPO market has been experiencing a decline in the number of total IPO’s in the last few years.


Bearing in mind the current loose monetary climate, this is a good chance for riskier companies to come out and seek funding for their operations, as there is a lot of cheap money chasing a limited number of IPO’s, stocks and riskier assets with high growth potential.

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For investors

Astralis Group makes its revenues primarily through sponsorships, and gaming tournament prizes. It is the indirect owner of three esports teams. They are Astralis (Counter-Strike, the most popular one of the three), Origen (League of Legends), and Future FC (FIFA). Currently, the three teams consist of 14 total players (5 for Counter-Strike, 5 for League of Legends, plus 1 substitute player, and 3 players for FIFA). Their ages range from 17 to 26 and average out at around 22 years of age. They represent the major human capital assets of the company that a lot of the revenue is built around. The company prides itself on its high track record and elevated performance in Counter-Strike. Below is the win-to-loss ratio of the Astralis team since 2015:

Source: Astralis official IPO Prospectus, HLTV

As we can see from the graph by Astralis Group, Astralis did make some astounding performance improvements since the introduction of their new performance model. Their win-to-lose ratio has risen from 1.5-2 to 6-7, which is quite an accomplishment. However, upon a closer look at their statistics in 2019, we can see that their year to date (YTD) win-to-lose ratio stood at 2.8 as of December the 9th. It’s still not bad and is rather high, however, not as astonishing as a 6-7 ratio that the company tries to portray.

As a result of their performance, Astralis has grown quite a follower base on Instagram (more than 300k followers). However, what is even more impressive is the engagement that the Astralis Instagram page seemingly has.

Source: Astralis official IPO Prospectus, Instagram

What is portrayed above is the number of likes as a share of total followers, in percentage terms. As we can see, Astralis seemingly has a 5% engagement rate on its posts. Hence, very good brand engagement, especially when compared to competitors and large brands such as the New York Knicks, or Manchester United. However, as written in the notes of the picture, the data was based only on a small sample of 10 pictures since 25 September 2019. If we take the same weekday (which was Wednesday) and apply that same calculation to today (so, starting 4th of December), we actually get an engagement ratio of around 2.5%. This is also much closer to the average engagement ratio for pages of sizes ranging from 100k to 1M followers, which, according to Phlanx.com is around 2% on Instagram.

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Another interesting statistic Astralis Group gives is the total viewers per Counter-Strike Team, in million hours online viewers:

Source: Astralis official IPO Prospectus


As we can see, team Astralis was barely above its two best competitors in 2018 viewership. Further in-depth analysis reveals that not only was the viewership close but Faze Clan actually had a win-to-lose ratio of barely 1.08, whereas Natus Vincere had a win-to-lose ratio of only 1.38, according to HLTV. This might tell that performance is not everything in esports, and much better performance does not necessarily always translate into better viewership.

In terms of the total esports viewership growth, the picture seems to be quite good. Total viewership is expected to grow to almost 600 million total viewers in 2022. That is 11% per anum increase.

Source: Astralis official IPO Prospectus

This obviously translates into revenues. As per the chart below, global esports revenues are expected to increase to almost 1.8 billion US dollars by 2022. That will mostly be driven by brand investment revenues, such as media rights, advertising, and sponsorships. This is important because sponsorships are a major part of Astralis Group revenue. In addition, it is expected that by 2022 the revenue per viewer will have also grown significantly, to around $3 per viewer.

Source: Astralis official IPO Prospectus


We can also make an interesting comparison when looking at USD monetization per enthusiastic viewer (see figure below). As we can see, Esports, in general, has a $5 average revenue per enthusiastic viewer. This is 18 times lower than that of the major baseball, or hockey leagues in the US. So, there does seem to be a lot of potential here. However, the seemingly super popular NBA league to this day has not been able to reach such highs. Moreover, esports is not the same as regular sports and has been shown to be detrimental to one’s mental and physical health if overly pursued. In addition, it’s still a rather niche entertainment activity for most people and is generally seen as less exciting than traditional sports. While the potential is there, it does not mean that it will be taken advantage of due to the reasons we have outlined previously.

Source: Astralis official IPO Prospectus

As for the financials, Astralis Group Management ApS’ reported consolidated net revenue equals DKK 29.2 million for the nine-month period ended 30 September 2019 (within the Group’s influence). According to Astralis Group, the expectations for the performance for the Group for the period 1 January – 31 December 2019 are:

  • Net revenue in the range of between DKK 40 million – DKK 43 million
  • EBITDA in the range of between DKK -20 million – DKK -22.5 million

The projections of the medium-term financial targets for the Group for the financial years ending 31 December 2020 and 2021 are:

  • Net revenue in the range of between DKK 60 million – DKK 70 million for 2020
  • Net revenue in the range of between DKK 85 million – DKK 100 million for 2021
  • EBITDA in the range of between DKK -3.5 million – DKK -5 million for 2020
  • EBITDA in the range of between DKK 0 million – DKK 4 million for 2021

Source for the financial information given above: Astralis official IPO Prospectus

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As we can see, the company does not expect to break even until financial year ending 2021.

As for the composition of the revenue, in the 9 months of 2019 so far the revenue comprised of the following. 50% came from sponsorships. 40% came from prize money and other revenue from tournament participation. 10% came from merchandise and stickers.

This means that a great deal of importance will be placed on sponsorships and tournament participation. Both of which are basically contingent on continued outstanding performance by the team(s). However, as we know from past history, peak performance is hard to keep up. Teams break up, champions do change quite a lot, major athletes do switch teams a lot, team chemistry matters. Throughout the 72 years of NBA history, there have been 50 champion changes. Also, some teams have been more successful than others. For instance, only 5 teams have managed to win more than 3 championships. They make up for more than 70% of all NBA championships wins. So, if you’re investing in Astralis, you are betting that they will remain a key franchise in the industry for years to come.

Not only that, you are betting that they will be able to attract new talent and form new teams, fast. The average age of the players in their teams, as mentioned, is around 22 years. Computer games require mental agility, speed, concentration, all of which decline as we age. Because of this, the career window is smaller than it is for physical sports, and both starts and ends earlier. For instance, the average age of the NBA is 27.7 years. Here is the list of the average ages of TOP 15 Counter-Strike teams.

Source: HLTV

As we can see, only one team’s average comes close to 27 years. Due to this dynamic, shorter career windows mean a larger turnover (change in team personnel) and more stock price volatility. In addition, to fight this, Astralis Group cannot just hire multiple teams to represent the same game and compete against each other. And the list of extremely popular multiplayer games for esports is not that long. In addition, the prize pool of those games is also limited. As we can see from the graph below, this shows the top 10 esports by the total prize pool in Half 1 of 2019 in USD.

Source: Esportsobserver

That said, however, bearing in mind Astralis Group only has three teams at the moment, this does open a lot of remaining opportunities to expand the business.

Another dynamic is that Astralis directly depends on the games staying popular. That is, on the game publishers continuing to make improvements on the game. And even more than that, on competitor games not overshadowing them. Also, trends and tastes do change a lot in the gaming industry, and this can shake the more established games in a major way if they aren’t able to keep up with the current trends and adjust their games to fit them. Games going under or becoming unpopular would be a source of large market moves in stock price.

Finally, Astralis Group’s agreements with sponsors are primarily fixed for 2-3 years. That is a rather short period of time, and teams can lose sponsorships quite fast.

For traders

So, why did Astralis go public? According to them, it was mainly to fund their league buy-ins. More leagues equal more prize pools, which can equal more earnings. Let’s see their planned use of this cash in percentage terms.

50-60% – League buy-in
15-20% – Investment in international reach
10-15% – Product development
10-15% – Brand development

How did it start to trade in the public markets? The share price seems to have opened a touch higher and then fell to a level of around 9 DKK per share.

From the expected 41.5 million DKK revenues in 2019 and a valuation of around 500 million DKK (given the share price of 9 DKK), we can calculate a price to sales ratio (P/S ratio). Based on that, the P/S ratio for Astralis Group is around 12. That is, the company is trading at 12 times this year’s revenues. As a comparison, I took a few other esports stocks to compare this ratio with. Let’s take a look.

Source: Ycharts


As we can see, the three stocks I have taken, Activision Blizzard Inc, Take-Two Interactive, and Electronic Arts P/S ratios do not and did not compare to the ratio of 12 of that of Astralis Group within the last 20 years. Does that mean the stock is overvalued? Possibly, however, the comparison I made is not absolutely apples to apples, since those companies have other strong business arms, other than their esports gaming teams.

According to Astralis Group, revenue streams of approx. 60% are currently settled in Euros and approx. 40% is settled in USD. While revenues are reported in DKK. This means there is some currency risk traders have to bear in mind while trading and valuing the stock.

Revenues in the gaming industry keep expanding at a fast pace and seem to ignore recessions (take a look at the years 2000 and 2007-2008).

Global gaming industry revenues:

However, while that can suggest that esports is resilient to recessions, that is not true. In fact, the share prices of esports stocks tend to fall much more than the larger cap indexes. Take a look:

Source: Ycharts

To conclude, Astralis Group seems to be a growth stock and is a good investment for those looking for better than average returns. However, the stock is more volatile in nature and there are a lot of potential risks facing it. The business revolves around people and very few important teams, which is inherently unstable. In the company’s IPO prospectus, the company does tend to soften and lighten the picture quite a bit. However, as we have seen, the prize pool is still quite large for many games, and Astralis Group has still a lot of room for growth. Let’s not also discount the possibility for further different ventures being released by the company, which could lift the limits to growth currently in existence.

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