FaZe Clan (NASDQ:FAZE), a digital media company popular with gamers, went public July 20 through a Special Purpose Acquisition Company (SPAC). The SPAC was originally called B. Riley Principal 150 Media, trading as BRPM. Now, the two have merged and trade under the FAZE stock ticker.
Even before the merger, the sponsor lent FaZe $10 million, and BRPM was trading below its $10/share offering price. This led to 1.23 million shares of BRPM being held short on June 30.
The latest move on FAZE stock looks like a short squeeze.
What’s in FAZE Stock
FaZe Clan runs a network of social media influencers and e-sports personalities with 120 million YouTube subscribers. The company was launched in 2010 by a group that posted gameplay videos.
CEO Lee Trink, previously president of Capitol Records, joined in 2018. He said he was looking to build a brand for “Generation Z,” the people born in this century. The eldest members of Generation Z have just graduated college.
FaZe valued itself at $1 billion when the SPAC deal was announced. The deal itself valued FaZe at $713 million. FaZe’ most recent filings indicated it had $50 million in revenue for 2021, projected to reach $90 million this year. The company drew publicity in March for bringing rapper Snoop Dogg onto its board.
FaZe is still small enough, however, to switch business models on a dime. Trink said recently FaZe is de-emphasizing esports in favor of a deal with DraftKings (NASDAQ:DKNG), a food delivery service, and play-to-earn gaming that could let streamers be paid. But gamers are still being recruited.
Why the Squeeze?
Skepticism about SPACs, social media, and FaZe’s valuation caused initial reaction on the deal at Reddit to be negative. Before the SPAC became FAZE, the volume of short interest was rising. Fellow InvestorPlace contributor Larry Ramer called the initial trade “messy.”
But one man’s mess is another man’s short squeeze opportunity. The price of FAZE rose 25% when trading opened July 25, on heavy volume. It peaked at $15 by 10 AM. It was still up by 38% at noon.
What Comes Next
Short interest data for the first half of July is due to come out early on July 26. If short interest was rising, the rally could continue. If the June 30 shorts covered, the stock could fall hard. A $1.3 billion valuation for a company that expects $90 million in revenue won’t play in the current market environment.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
