Will Epic Games Make an IPO Any Time Soon?

Most of the biggest players in the gaming industry are publicly traded companies. Electronic Arts, Microsoft, Ubisoft, Take-Two Interactive, Nintendo, SciPlay, and Activision Blizzard are some of the most well-known brands in the industry and are all listed on major stock exchanges.

One company that bucks this trend is Epic Games, Inc. The company, which is based in Cary, North Carolina, was originally founded as Potomac Computer Systems in 1991 but changed its name to Epic MegaGames, Inc. the following year.

It is perhaps best known for creating the Gears of War series and Fortnite, though it has produced dozens of other titles too, including Rocket League, Spyjinx, Infinity Blade, Shadow Complex, and Age of Wonders.

However, Epic Games has strong vertical integration, with its Epic Games Store (a rival to Valve’s Steam) and the Unreal Engine. This latter product was first developed for the 1998 first-person shooter, Unreal. This game engine is now in its fifth iteration and has been used for a whole host of third-party titles including PlayerUnknown’s Battlegrounds, Final Fantasy VII Remake, and Yoshi’s Crafted World.

Its versatility has allowed the Unreal Engine to be used in the film industry, with The Mandalorian and Westworld both using it for editing. Its also been award a Technology & Engineering Emmy Award for the best “3D Engine Software for the Production of Animation”.

Epic Games also has a strong presence in the world of esports. The company’s flagship game, Fortnite, is used as one of the biggest mediums for competitive video gaming, holding the record as the game with the third-highest prize in esports history. With Fortnite continuing to grow in popularity, the company’s position in the esports space is likely to strengthen too.

Still Owned by the Founder

Epic Games goes against the grain in the industry as not only is it not publicly traded, but the company’s founder, Tim Sweeney, retains a shareholding of more than 50%. This is rare for a company that reportedly generates more than $4 billion in revenue each year and is the creator of several of the most popular video game titles on the market.

The company is structured and is managed more like a late-stage start-up business than a 30-year old company with a valuation in the tens of billions.

In mid-2020, Epic Games reportedly raised $750 million in funding from T. Rowe Price Group, Baillie Gifford, and KKR & Co. This gave the company a post-funding valuation of $17 billion.

In 2018, the Chinese tech giant, Tencent, bought a 40% stake in the company for $1.25 billion. At the time, this was the gaming industry’s second-biggest investment and its largest non-IPO investment.

IPO Imminent?

Companies can go on raising funds to expand their growth for a long time, but eventually, investors will want to exit the business and cash in their profits. There are two main ways that this is done. The first is to sell the company to another private investor (or group of private investors) and the other is to list the company on the stock market.

This latter option is known as an Initial Public Offering (IPO) and allows founders and investors to profit from the company’s growth while still retaining a stake in the company and even keep control of decision making.

It seems pretty likely that Epic Games will eventually float on the stock market, though it is a matter of when.

In early February 2021, social media went into a frenzy when Tae Kim shared a screenshot from LinkedIn that showed Epic Games had recently hired someone to conduct Investor Relations. When pressed about this though, the company said it was “fairly common” for businesses like theirs to have someone responsible for “broadening and deepening relationships” with existing investors. However, it also added that they were “always monitoring the market” and that they are “prepared to consider opportunities”.

As recently as April 2021, Epic Games has continued to conduct more funding rounds with one in March that valued the company at $28 billion and another in April that raised another $1 billion.
Given this, it seems pretty unlikely the company is planning to list any time soon, and with blockbuster legal battles underway with Apple and Google, the company may be waiting to see the outcome from that before it gives the public an opportunity to buy any of its stock.

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