If you’re looking at the recent and incredible debut of Roblox Corp [NYSE:RBLX], you might be wondering what sort of video game stocks the ASX has to offer.
Unfortunately, you’ll quickly find that it’s slim pickings. With few stocks to choose from, and most trading with extremely tiny market caps.
And when it comes to Emerge Gaming Ltd [ASX:EM1], well, size isn’t the issue.
The Emerge Gaming share price is trading 2.56% lower at time of writing. Furthering the downward trend that has plagued this stock since late October.
Today, despite ongoing concerns, they’ve been given a lifeline.
$4.7 million to stay afloat
Emerge announced today that it has received $4.7 million in fresh capital. Striking a deal with Evolution Capital Advisers to secure the sum via an option exercise underwriting agreement.
Effectively, it means that Evolution has bought the rights to 237,091,175 EM1 options. Each of which is exercisable for 2 cents per option with an expiry date of 18 April. A cheap and effective way to gain a stake in this struggling company.
See, the trouble with Emerge is that they’ve partnered with some shady businesses.
Two companies known as Crowd1 and Impact Crowd Technology (ICT) are at the heart of this matter. Entities that have allegedly been labelled as fronts for scams, pyramid schemes and other nefarious dealings.
And while it seems Emerge was not complicit in these accusations, their operations may have been compromised by them.
That’s why management no doubt sought out more capital. To not only investigate whatever is going on behind the scenes of their gaming platform, but also to ensure they have working capital.
More worrying still though, was this comment provided to The Market Herald from Emerge’s own legal team:
‘“People subscribing to Miggster [Emerge’s gaming platform] can enter online tournaments in which they play games of their choice. Those playing are eligible to win rewards and prizes. It is assumed that some participants will be motivated to play games for the pure enjoyment of playing, some will be motivated to win the rewards and prizes on offer, and others will have mixed motivations,” Emerge’s legal team said.
‘The company said it is “not privy to the motivations and decision-making processes” of individual Miggster subscribers.’
For any investors, that should be treated as worrying commentary. Suggesting that Emerge may not even fully understand what kind of product it is that they’re promoting and selling to users.
Where to from here for the EM1 share price?
Personally, this entire fiasco seems like a toxic mix. Something that I wouldn’t be touching as an investor.
It is hard to imagine that Emerge will get out of this situation without some kind of repercussion. Whether it be their fault or not. And that makes this latest capital lifeline look like a desperate bid to stay solvent.
Who knows, perhaps Emerge will find a way to come out of this for the better. Right now, that seems fairly unlikely.
That’s why you always need to have a solid risk management strategy as an investor. Especially when trading these kinds of tiny and speculative stocks. Something that our in-house expert, Murray Dawes, knows all too well.
Fortunately, he’s here to help. Putting together a comprehensive guide on his preferred method for managing risky investments. Taking emotion out of the equation in order to ensure that you get the best returns possible.
For more information, check out his full guide, right here.
For Money Morning
P.S: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here