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Why The New Epic Games Valuation Is A Win For Tencent

Chris Katje

The big news in the world of gaming last week was the dispute between Epic Games, Apple Inc. (NASDAQ: AAPL) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL).

The "Fortnite" developer was removed from both app stores after challenging the 30% fee cut from the two larger companies. Epic Games sued both Apple and Google, alleging monopolistic practices.

Prior to this event, Epic Games raised more money at a huge valuation, which is good news for Tencent Holding Ltd. (Pink: TCEHY), the largest gaming company in the world and an Epic Games stakeholder. 

What to Know: Epic Games recently raised $1.78 billion in funding. The round valued Epic Games at $17.3 billion and included a $250-million investment by Sony Corporation (NYSE: SNE).

The Sony investment gave the company a 1.4% stake in Epic and will help “broaden their collaboration across Sony’s leading portfolio of entertainment assets and technology.”

New investors included Fidelity, Lightspeed, David Tepper, and the Ontario Teachers Pension Plan Board. Existing investors KKR & Co. (NYSE: KKR) and Smash Ventures increased their stakes. 

Why It’s Important: Tencent purchased 40% of Epic Games back in 2013 for $330 million.

Based on the new funding, Tencent’s 40% stake in Epic Games is now valued at $6.92 billion. That's a huge return over the last seven years.

Tencent has been an early investor in many gaming companies and is now dominant in the industry. 

The stake in Epic Games has seen one of the highest returns on investment for Tencent. The company’s other big win was investing early in Riot Games by buying 93% of the company in 2011 for $400 million, and eventually taking full ownership. Tencent also owns stakes in Bluehole, Ubisoft, Activision Blizzard (NASDAQ: ATVI), Grinding Gear Games, Supercell and Sea Limited (NYSE: SE).

What’s Next: It’s unclear whether this will be the final funding round for Epic Games for some time or if it continues a trend of fundraising every few years.

Rumors of an IPO have also floated around, and with the video game sector flying high, now could be the right time. 

Tencent shares are up 35% in 2020. Shares hit a high of $72.95 just weeks ago. A new fundraising valuation for Epic Games highlights how Tencent has seen some of its earliest stakes in gaming companies pay off.

"Fortnite" screenshot courtesy of Epic Games. 

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