If youâve been on the lookout for a new growth stock to add to your portfolio, the sports tech company ChallengerX (AQSE: CXS) might be just the ticket you need. With an innovative new product solving a problem that has now spanned multiple generations, the potential for this stock to explode is phenomenal.
And this isnât just about the potential to take offâthe probability that this will happen is also incredibly high. ChallengerX is entering into a market that literally has zero competitors. And itâs doing so with a low-cost, friction-free client onboarding process that puts up immediate barriers to entry for competitors who want to enter the fray.
So who is ChallengerX, what is it doing, and just how big could it become? Letâs find out.
The problem: Solving a Generations-Long Problem for Sports clubs
For as long as theyâve existed, most of the worldâs sports clubs have faced the problem of raising funds. Sure, for professional teams with media exposure, things are exponentially easier and more profitable. But, for the average amateur and semi-professional team, fundraising is a constant, year-round struggle.
Whatâs worse is that, for the most part, sports clubs are still dependent on the usual suite of membership dues, local sponsorships, and a handful of fundraisers. And this has persisted for generations, despite the world changing around them.
The problem gets even worse when you realize the scale of the problem, too: there are 151,000 sports clubs in the UK alone. When you extend this to the rest of the world, you suddenly realize that weâre talking about a multi-trillion-dollar problem.
The Solution: Turning Davids into Goliaths
The ChallengerX solution to the sports fundraising problem is based on the realization that most sports clubs are failing to take advantage of the opportunities to generate revenues online. And this was surprising given that even the smallest of clubs usually have a modest website and some social media presence.
When the founders went digging into why sports clubs werenât doing more here, they quickly realized that sports clubs simply didnât know how, or didnât have the time and energy to invest in something that doesnât pay off immediately. So ChallengerX created a solution.
That solution was to create a SaaS product that allowed sports clubs to quickly begin doing things like affiliate marketing. This is when merchants pay partners for driving referrals to their business.
Here, ChallengerX takes care of managing affiliate relationships and provides numerous tools (browser extensions, deep-links, etc.) that clubs can leverage to drive referrals to merchants.
What makes this especially powerful is revealed by the companyâs name for this concept: cashless giving. This implies that members and fans of the sports club donât need to do anything above and beyond their usual online shopping to create new revenue streams for their sports club. For example, instead of heading straight to Amazon, users could instead use the browser extension to click on an Amazon affiliate link, thus creating affiliate revenue for their club.
The Opportunity: Millions in Revenue in the First Year Alone
To put this opportunity into perspective, letâs do a little bit of quick maths.
3000 sport club clients by December 2022
First, letâs say ChallengerX is able to capture 3000 club clients by the end of this year. Thatâs a conservative number that represents about 2% of the estimated 151,000 clubs in the UK alone. Once you account for all the sports clubs in the world, that number gets even bigger, too.
In fact, given the friction-free, zero-cost onboarding process the company has thatâs guaranteed to generate strong word of mouth, this number is almost too conservative. But weâll use it for now anyway just to see what a lowball estimate looks like.
84,600 active users by December 2022
Now, using the same source of numbers from the UK as an example (151,000 clubs), each club is reported to have an average of 141 members. This would immediately expose ChallengerX to 423,000 club members in its first year alone.
For the sake of the exercise, letâs imagine that ChallengerX is only able to capture 20% of club members as active users of its cashless giving tools.
Again, this number is a conservative figure. Itâs hard to imagine any loyal club member actively refusing to support its club when that support demands nothing more than clicking on a link. And itâs even more conservative once you account for all the non-club-affiliated family and friends each member has.
So, by the end of the year, we can safely say that ChallengerX will have at least 84,600 active users.
Letâs see what thatâs worth.
An average of 10% commission
Typical affiliate commissions range between 5-30% of customer spend, depending on the merchant. So letâs make a conservative guess and say that ChallengerX is able to average out to about 10% across all of the subscribed affiliate programs.
An average per-user spend of Â£725/annum
Now, letâs say that ChallengerX is able to convert 20% of this into affiliate traffic. That would give us Â£725 worth of affiliate spending per user, per year.
And, chances are, the real spend would be much, much higher than this. Remember, we arrived at the per-user spend by dividing total eCommerce spend by the entire population. This includes kids, the elderly, and everyone else in between that isnât an active online shopper.
A minimum Â£3 million in ARR by year-end
Putting all of this together, we get:
x Â£725 affiliate spend / user / annum
x 10% commission
x 50% CXSports service fee
= Â£3 million ARR
Thatâs just year one. Long term, the numbers go way up and, once ChallengerX hits so-called hockey stick growth (excuse the sports pun), youâre starting to look at a Â£1 billion-plus ARR in just a few short years.
A Valuation of at Least Â£30 Million by Year-End
For the sake of short-term thinking, letâs apply a relatively conservative 10x ARR valuation (early-stage SaaS companies usually value way higher than this). Doing this, you arrive at a company thatâs valued at Â£30 million by the end of this year.
Now, given that its current market cap is sitting at a little under Â£5 million, weâre looking at an extremely conservative estimate of a 6-7x appreciation in value this year alone. And thatâs just the beginning. User growth will only go from strength to strength as word of mouth compounds, meaning that, in the space of just a few short years, we could very well be looking at the next multi-billion-dollar unicorn.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words âbelieve,â âproject,â âestimate,â âbecome,â âplan,â âwill,â and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
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