Many gamers and investors want to own a piece of Epic Games because the company makes and markets Hitman, and Fortnite, one of the world’s most popular and fastest-growing massive multiplayer online games (MMOGs). Fortnite had 350 million players in 2020, a ten-fold increase from 30 million in December 2017.
Parents are interested in buying Epic Games stock because they see how much money their kids spend on Fortnite. Fortnite free to play but Epic Games makes money by selling an $11.99 a month Fortnite Crew Experience subscription, which gets players extra weapons and other perks.
Epic Games Stock
The largest owner of Epic Games stock is Epic’s founder and CEO, Tom Sweeney, who owns over 50% of the company. The next largest owner of Epic Games is the Chinese conglomerate Tencent Holdings (TCEHY). Tencent, the world’s largest video game company, owns around 40% of Epic Games’ stock.
Major investors in Epic include Baillie Gifford, Fidelity, Lightspeed Venture Partners, the Ontario Teachers’ Pension Plan Board, T. Rowe Price, Blackrock, David Tepper, KKR, and Smash Ventures.
Epic Games last funding round in August 2020 raised $17.3 billion from private investors, meaning Epic can raise enormous amounts of money without a stock.
Epic Games Stock Price
Epic Games currently has no defined stock price because it is not publicly listed on any stock exchange. It is entirely owned by the founder Tom Sweeney, venture capital groups, and Tencent Holdings, one of the world’s largest video companies. To buy Epic games stock, you need to buy stock in Tencent Holdings.
Epic Games Stock Symbol
There is no Epic Games stock symbol because Epic is a privately-held company and not currently available for purchase on any global stock exchange. The stock ticker EPIC is not currently taken in the USA, so EPIC would be the ideal symbol for Epic Games stock. But until there is an IPO, there will be no stock symbol for Epic Games.
Does Epic Games Have Stock?
Yes, Epic games do have stock, but the shares of Epic Games are privately held. This means as an independent retail investor; you will not be able to buy stock in Epic Games through a stock exchange or brokerage account. You will need to invest in the companies that own Epic Games stock.
The Epic Games Value Proposition
Epic makes money by selling a wide variety of games through its website. Users download the games and buy a chance to compete in them.
Some of the games, such as Medium, sell for a high price. Users paid $44.99 to download Medium on February 2, 2021, for example. Another game, Bloodlines 2, sold for $59.99.
Epic also sells other company’s games, including Rockstar Games’ Red Dead Online and Electronic Arts’ Star Wars titles. Epic Games charges a commission on the outside titles it sells and makes more money from its titles. One hope at Epic is that people who visit Epic Games’ store to buy those titles will also buy Epic’s titles.
Epic Games makes money by letting people play its MMOGs for free. Players who want more weapons and paraphernalia buy that stuff from Epic.
Epic Games made $1.8 billion in revenues from Fortnite in 2019, SuperDataResearch estimates. Fortnite also made over $25 million in its first month in the Apple App Store in 2018, Sensor Tower claims.
Apple (AAPL) threw Fortnite out of the App Store in April 2020 because Epic Games added an in-app payment system that bypassed the App Store’s 30% fee; this caused controversy and highlighted Apple’s abuse of power in the monology app store it owns.
This action could hurt Epic because the Apple Store is the world’s largest software marketplace. The world’s other big app marketplace, Alphabet’s (GOOG) Google Play, has also thrown Fortnite out.
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The Unreal Engine
A growing moneymaker at Epic Games is the Unreal Engine, an advanced and open-sourced real-time 3D creation tool. Video game designers, movie makers, and others use the Unreal Engine to create 3D games, commercials, artwork, and movies.
Potential uses for the Unreal Engine include film and television, training and simulation, industrial design, architecture, science, medicine, website design, app building, and engineering.
The hope for the Unreal Engine is that Epic can become a software provider as well as a game developer. Epic could make money by charging businesses and creators to use the Unreal Engine for design and other purposes.
Epic Games Stock IPO
There will be no Epic Games initial public offering (IPO) soon because the company can raise enormous amounts of money without floating on a stock exchange. Under the current arrangement, Sweeney controls the company but has access to Tencent’s resources and capital. Sweeney will have to relinquish control if Epic Games goes public.
There is no reason for Sweeney to take Epic public as long as it can make money, grow, and raise venture capital without a stock. Epic can make enough money from game sales and subscriptions to survive for many years, making it a new technology unicorn.
However, investors can buy into Epic Games by buying Tencent Holdings stock.
3 Great Ways to Invest in Epic Games
1. Buy Epic Games through Tencent Holdings
There is a way you can buy into Epic Games without an Epic IPO. You can purchase shares of Tencent Holdings ADR (OTCMKTS: TCEHY). Tencent Holdings is a multinational Chinese conglomerate that observers consider the world’s largest video game company. Tencent Holdings trades on the Hang Seng Index under the ticker symbol SEHK 700.
Tencent’s biggest holdings include the creator of League of Legends Riot Games. PCGamer estimates League of Legends is the most popular personal computer (PC) game in the world.
Tencent Holdings owns 80% of Grinding Gear Games, the developer of the popular Path of Exile game. Path of Exile had 237,160 players in January 2020, PCGames estimates. However, PCGames estimates Path of Exile’s player base grew by 11%.
Tencent makes equity investments in many game developers. Tencent’s revenues show gaming is a lucrative business.
Macrotrends estimates Tencent Holdings’ quarterly revenues were $16.21 billion in the second quarter of 2020. Tencent’s quarterly revenues grew by 24.49% between the second quarter of 2019 and the 2nd quarter of 2020.
Tencent Holdings’ annual gross profit grew from 142.12 billion yuan ($22 billion)in 2018 to 168 billion yuan ($26 billion) in 2019, Statista estimates.
Tencent reported an annual operating income of 109.400 billion yuan ($16.93 billion) on December 31, 2019, Yahoo estimates. Yahoo reports that Tencent had 953.986 billion yuan ($147.64 billion) in Total Assets and 13.812 billion yuan ($2.14 billion) in working capital on December 31, 2019.
In my opinion, these numbers show Tencent Holdings is a good company with enormous value. It is hard to estimate Tencent’s value, profits, and income because it trades on Chinese exchanges.
However, I think Mr. Market fairly priced Tencent shares at $93.90 on February 3, 2021. If you seek a Chinese company to invest in or a value investment in video games, Tencent Holdings is worth examining.
Some investors will have moral objections to Tencent Holdings because of its connections to the Chinese Communist Party. Others will think the Chinese connections give Tencent Holdings a margin of safety because it has the support of the Chinese government.
People who think the American stock market and economy could collapse can hedge their investments by purchasing Chinese stocks such as Tencent Holdings. Tencent even paid a small dividend of 15.48₵ on May 14, 2020.
2. Buy Leading Competitor Electronic Arts (NASDAQ: EA)
Electronic Arts (EA) is one of the largest publicly-traded video game companies.
Electronic Arts’ game lineup includes such big titles as Star Wars, NFL (National Football League), FIFA (World Cup Soccer), Need for Speed, Apex Legends, The Sims, UFC, Medal of Honor, and NHL (National Hockey League). Statista estimates that the EA’s Apex Legends MMOG had 70 million registered users worldwide in October 2019.
Electronic Arts makes money from its games. EA reported a quarterly gross profit of $865 million and a quarterly operating income of $149 million on September 30, 2020. Electronic Arts reported quarterly revenues of $1.151 billion on the same day.
However, Electronic Arts made less money in 2020. Electronic Arts reported quarterly revenues of $1.593 billion on December 31, 2019. Electronic Arts’ quarterly operating income fell from $268 million on December 31, 2019. The quarterly gross profit fell from $1.085 million on December 31, 2019.
Electronic Arts can generate enormous amounts of cash. The company reported a quarterly operating cash flow of $1.104 billion on December 31, 2019. The quarterly operating cash flow fell to $61 million on September 30, 2020.
EA also reported a quarterly ending cash flow of $4.013 billion on June 30, 2020. The quarterly ending cash flow fell to $46 million on September 30, 2020. Electronic Arts began 2020 with a quarterly ending cash flow of $663 million on December 31, 2019.
Electronic Arts had $6.031 billion in cash and short-term investments on September 30, 2020. Thus, I think EA’s financial numbers show that gaming companies can generate enormous amounts of cash. Electronic Arts offered some value in the form of $11.470 billion in Total Assets on September 30, 2020.
I think Mr. Market overvalued Electronic Arts by paying $138.06 for its shares on February 4, 2021. Electronic Arts’ share value has grown over the last year. Mr. Market paid $107.07 for Electronic Arts’ shares on February 4, 2020.
Electronic Arts will pay a 17₵ quarterly dividend on March 24, 2021. Overall, Electronic Arts shares offered a forward annualized dividend of 68₵ and an annual dividend yield of 0.46% on February 4, 2021.
Electronic Arts is not a value investment because Mr. Market overprices it, but Electronic Arts could be a valuable investment if the share price falls significantly.
3. Buy Activision Blizzard, Inc. (NASDAQ: ATVI)
Activision Blizzard (ATVI) is the publicly-traded company behind such giant gaming franchises as World of WarCraft, Overwatch, Call of Duty, and Candy Crush.
World of Warcraft is one of the most famous and most mocked massive multiplayer online games (MMOGs). However, World of WarCraft had only 4.74 million subscribers in 2021.
Statista’s numbers show that keeping players is one of gaming companies’ biggest challenges. Statista estimates that World of WarCraft’s subscriber base peaked at 5.67 million in 2016. Statista forecasts that World of WarCraft’s subscriber base will fall to 4.46 million in 2023.
Candy Crush is one of the world’s most popular mobile games with 273 million monthly active users on March 7, 2020, Video Games Stats estimates. The Call of Duty MMOG had over 110 million monthly players in November 2020, The Wrap estimates.
Activision claims its overall player base grew by 25% between the third quarter of 2019 and the third quarter of 2020, The Wrap claims. Similarly, Activision Blizzard’s net bookings (sales generated from games) grew 46% year-over-year.
Activision Blizzard makes money. It reported a quarterly operating income of $778 million and a quarterly gross profit of $1.485 billion on September 30, 2020.
Activision is making more money; its quarterly operating income grew from $454 million on December 31, 2019. The quarterly gross profit grew from $1.33 billion on December 31, 2019. Conversely, Activision Blizzard’s quarterly revenues fell from $1.986 billion on December 31, 2019, to $1.954 billion on September 30, 2020.
Activision Blizzard’s business is growing dramatically. Stockrow estimates Activision’s revenues grew by 52.42% in the quarter ending on September 30, 2020. The revenue growth rate rose from 38.4% in the quarter ending on June 30, 2020, and -2.03% in the quarter ending on March 31, 2020. Activision Blizzard started 2020 with a negative revenue rate of -16.62% in the quarter ending on December 31, 2019.
Activision Blizzard generates some cash from its business. The company reported a quarterly operating cash flow of $768 million on June 30, 2020. The quarterly operating cash flow fell to $196 million on September 30, 2020. Blizzard started 2020 with a quarterly operating cash flow of $918 million on December 31, 2019.
Activision reported a quarterly ending cash flow of $1.077 billion on September 30, 2020. The ending cash flow was down from $430 million on June 30, 2020, and $5.91 billion on March 31, 2020.
Blizzard is borrowing enormous amounts of money because it reported a financing cash flow of $934 million on September 30, 2020. However, Activision does not have much debt; it reported $3.605 billion in long-term debt on September 30, 2020.
Activision Blizzard can accumulate enormous amounts of cash. Blizzard reported $7.415 billion in cash and short-term investments on September 30, 2020. The cash and short-term investments grew from $5.794 billion on December 31, 2019.
Activision Blizzard is a value investment because Mr. Market fairly priced its shares at $92.68 on February 4, 2021. Activision is a good growth stock because its share price rose from $58.85 on February 5, 2020.
Activision Blizzard could be an excellent dividend stock if they switch to a quarterly dividend. Activision last paid an annual dividend of 41₵ on April 14, 2020. The annual dividend rose from 37₵ on March 27, 2019.
Activision Blizzard is the best choice for investors in gaming stocks because it is a growth and an income stock. Activision’s share price has grown, but it has not grown excessively.
Importantly, Activision’s business is growing, and it makes more money from that business. If you want a gaming company that grows and makes money, Activision Blizzard could be a safe choice.
Will There be an Epic Games IPO?
Activision Blizzard’s success shows that gaming companies could be an excellent investment. Activision, in particular, is growing fast and generating enormous amounts of cash. Epic Games stock could offer similar attributes. However, there is no indication that either Tom Sweeney or Tencent Holdings plan an Epic IPO.
There will not be an Epic Games IPO anytime soon because Epic could make enormous amounts of money selling MMOG subscriptions and paraphernalia. Thus, Epic could generate all the cash it needs without an IPO.
Another problem is that Tencent Holdings’ management does not want to relinquish the control that owning 40% of Epic offers. However, Tencent has a strong incentive to recommend an Epic Games IPO because of the potential of a high share price for Epic Games.
Sweeney and Tencent Holdings could own an enormous amount of Epic shares they could sell or borrow against. Remember, most of the fortunes of the world’s two richest men, Elon Musk and Jeff Bezos, consist of stock.
Investors need to watch Epic Games because its IPO could be valuable. Unlike some other IPO companies, Epic makes money by selling a popular product for which there is a growing demand.
Is Gaming a Value Investment for the 21st Century?
The product is games for which human beings have an insatiable demand. History shows that people will play games and will pay money for those games.
Games are now the world’s most popular entertainment product. Statista estimates there were 2.7 billion gamers worldwide in 2020. The largest market for games is the Asia Pacific, with 1.447 billion players. Epic is well-positioned to tap that market through its partnership with Tencent Holdings.
IDC estimates that global video game revenues grew to $179.7 billion in 2020, MarketWatch reports. In contrast, the global movie industry reported $100 billion in revenue in 2019. Global video game revenues grew from $139.8 billion in 2018 and $150.2 billion in 2019, IDC estimates.
Gaming is a growth industry that can generate enormous amounts of cash. All investors seeking stocks that can make money and grow need to examine gaming companies.