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Gfinity plc
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== What are the key risks of investing in the company? == As with any investment, investing in Gfinity plc carries a level of risk. The key risks can be found below. Overall, based on the Gfinity plc's adjusted beta (i.e. 0.987), the degree of risk associated with an investment in Gfinity plc is 'medium'. Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. The key risks can be found below. For us, the biggest risk relates to a lower than expected uptake in the company's offering(s). === Strategic risks === ==== COVID-19 risk ==== The COVID-19 pandemic drove an unparalleled level of uncertainty within the global economy. This has resulted in many organisations holding back from making long term spending commitments. It has also seen a movement away from spend on live, in- person events. The potential for further outbreaks and related lockdown measures also has implications for financial markets, which could have implications both for Gfinity’s share price and the availability of future capital. ==== Economic and political uncertainty ==== The United Kingdom’s exit from European Union has created a level of economic and political uncertainty, which provides risks at both a strategic and operational level for Gfinity. At a strategic level, the uncertainty could create challenges with regards to capital availability and the desire of global publishers, rights holders and brands to deliver programmes in the UK. ==== Intellectual property risk ==== Esports involves the use of intellectual property, typically owned by the publishers of the respective game titles. Gfinity must consider the risk of changes in strategy of the intellectual property owners, resulting in certain games not being available for use by Gfinity in its esports properties, or fees being required for the use of intellectual property, which may present a challenge to Gfinity’s business model. ==== Perception of video gaming ==== Some people view video gaming negatively, as something that promotes an unhealthy lifestyle and lack of social interaction. There is a risk that this perception will provide a barrier to entry to commercial partners and broadcasters, presenting a risk to Gfinity’s business model. ==== Competition risk ==== There are currently very few companies globally that can deliver full end to end esports solutions and Gfinity has established a first mover advantage. As the market develops, however, there is a risk of new entrants coming into the market, or game publishers looking to bring the capability in house. ==== Speed of revenue growth ==== Gfinity operates in a pioneering sector. Directors believe, supported by market research, that the value of that sector is significantly below the level it should reach, given the size and level of engagement of the audience and the attractiveness of that demographic to broadcasters and commercial partners. Nonetheless, that growth may not be linear and that may present a risk to the speed of revenue growth. === Operational risks === ==== COVID-19 risk ==== Alongside the strategic risks, the COVID-19 outbreak has presented multiple operational risks to the business, including: * Key staff availability; in the event that multiple people needed to be absent at a single point in time * Facility availability; ensuring we remain able to generate competitive gaming content for our own programmes and for clients without breaching government regulations * Maintaining efficient and effective ways of working, including ensuring that staff are able to do their jobs even if they can’t come to the office * Maintaining appropriate communication, so the company’s activities remain focused and aligned. ==== Liquidity risk ==== Gfinity is currently a loss-making company and as such, must ensure that it has sufficient capital available to deliver on its strategy ==== Access to key skills ==== Esports is a new sector and as such, the number of people with deep experience in developing and delivering esports solutions is limited. Without access to this expertise, Gfinity would not be able to provide the depth of solutions to its client base or build its own Gfinity “tribe”. ==== Data security risk ==== Gfinity has built a large community of esports fans playing, watching and socialising through its own platform and those of CEVO and RealSport. Increasing levels of data protection regulation, including GDPR legislation, and ongoing cyber security risks, make it imperative that any data gathered through these platforms is collected, handled and protected in accordance with all relevant regulations. Any failure to do so would significantly erode trust, both among the esports community and prospective commercial partners.
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