IPO Corner: The Future Is Gaming

Remember back in the day when gaming was just becoming a cultural phenomenon and we humans were both excited and afraid? Theories flew freely about the possible effects… every concern was on the table, from gaming fostering aggression to it causing social isolation. Well, as it turns out, those were feverish flights of fancy that don’t match up with the facts. We now know that, far from being harmful, gaming has widespread and well-studied benefits.

In fact, in stark contrast to our initial fears about games and gaming, studies have even shown that gaming can have the same effects on the brain as meditation, and that it can be extremely therapeutic. To illustrate our point, we’ll direct your attention to one of the companies we’re looking at in the IPO space today, Akili Incorporated. The company is a pioneer in a new space, prescription gaming.

In 2020, the company received FDA clearance for EndeavorRx (AKL-T01 outside the U.S.), a video game format prescription therapy for treating ADHD. We find this fascinating and can easily see a future where gaming could be a normalized part of a therapy regimen. Who knows, maybe the next time you’re struggling to focus on your work, your clinician might author a wellness plan for you that includes plenty of in-game screen time.

The New Social Network

Additionally, we’re seeing an evolution of the gaming space… we’re seeing games turn into the new social networks. Of course, we’ve always had gaming platforms where gamers coagulated… this is different. It’s no longer just “go for the games, stay for the company” in the gaming space, it’s “go for the company, stay and play games together”. And we’re finding that mobile gaming apps are having a heavy hand in this, as increased access to broadband and cheap devices are fostering these changes.

And if anyone is still kidding themselves that gaming is for children… we should get that idea out of our heads right now. People of all ages, genders, and socioeconomic status are gaming. Data aggregators that collect stats on gaming have told us that globally, every single year, consumers are spending over one trillion hours gaming and 25 billion hours watching gaming streams…. that’s more than they watch tv or play on social media combined.

We’re seeing people, especially younger generations, shift their content preferences from influencers and celebrities to “normal” people as well as an affinity toward genuine social connections rather than the show of surrounding themselves with an entourage or “looking” a certain way for social media. The future is authenticity… and these social gaming environments allow for a more immersive, authentic experience. That’s important to know and remember.

Deals To Watch

In 2021, the gaming market was valued at $198.40 billion and is expected to reach $339.95 billion by 2027. With more people gaining access to internet, mobile devices, and the expansion of high-bandwidth networks… we can expect more of this trend. By 2026, gaming will make up a whopping 10.9% share of global spending, that’s more than a 4% increase since just 2017. Two companies, which we’re looking at today, are on the forefront of this growth, Faze Clan and Akili Interactive.

Faze Clan was started in 2010 by a group of buddies who met while gaming on Xbox in their teens, and the company is one of the first specifically targeting the Gen-Z demographic. They’re one of the biggest global esports gaming companies, keeping users happy and engaged through gaming clips and major deals with esports players as viral personalities. Faze Clan completed a merger with blank check company B. Riley Principal 150 Merger Corp (BRPM) earlier this year, with the new combined company, Faze Holdings (FAZE), debuting on the Nasdaq in July and valuing the combined entity at $725 million.

The stock surged initially but is now back below its merger price. Maybe we’ll jump in when market conditions permit. After all, the company is currently shifting its focus toward more entertainment deals and lifestyle content around gaming and youth culture… and they’ve been packing their board with talent from the entertainment and media industry for the task. New faces include heavyweights such as Stephanie McMahon from the WWE, the artist Snoop Dogg, Ross Levinsohn from Sports Illustrated, and the founder of Carte Blanche, Zach Katz. The company has clout because they’re old enough to attract the same talent that grew up watching FaZe Clan players online, so brand loyalty is built in.

Earlier in the article when we talked about prescription video games, the inspiration was partly driven by this company, Akili interactive, which recently signed a $1 billion SPAC deal to take their prescription video game technology public. Based in Massachusetts, the company signed a reverse-merger deal with Social Capital Suvretta Holdings Corp. I (DNAD, a SPAC that completed a $220 million IPO in 2021) in order to make its own public debut, which it did earlier this year. The deal allowed for the ramp-up of their FDA approved EndeavorRx therapy program.

Additionally, proceeds are helping to speed up development for the company’s other digital therapeutics. Investors include Evidity Health Capital, Jazz Venture Partners, Omidyar Technology Ventures and PureTech Health, Averill Strategy, Apeiron Investment Group, Temasek, and Polaris Partners. Akili CEO Eddie Martucci says the deal will allow the company to expand its pipeline of products and allow for them to venture into bigger things in the digital medicine space.

So maybe we’re living in a time when your next therapy regimen may include gaming, or where our social media and gaming will combine into the next generation of social media platforms… or, maybe the next evolution of gaming is yet to be seen, and we’re just in a period of transition. While that wait to find out, we’ll be watching, and we’ll keep bringing you the latest research from contenders for my Buy List, so come back next week!