Pre-IPO pedia | Epic Games is building Fortnite to win the metaverse race

Epic Games is an American video game and software company that creates games and offers its game engine technology to other developers.

According to CB insights, as of January 23, 2022, it ranks the fifth largest unicorn, valuing at more than $40 billion.

Epic Games raised $1 billion in a new round of funding in 2021 April which lifts the company’s valuation to $28.7 billion.$200 million of the fresh cash raised came from Sony, which had initially invested in the company the year before. Other investors in the round included Appaloosa, Baillie Gifford and Fidelity.

In 2021 November, agroup of australian investors has acquired a small stake in Epic, in a rare deal valuing the american group at about $42 billion.

Epic is betting big on the so-called “Metaverse”.

"Metaverse" is an informal term used to describe a collaborative and immersive virtual world.

Metaverse has a vision of a virtual environment that would be the platform to interact with the internet and others, supplanting web browsers and mobile apps.

It competes with world-building games like Microsoft Corp.’s Minecraft and Roblox Corp.’s eponymous title in pursuing the metaverse vision.

Epic is a major player in the video games industry. Its battle royale title Fortnite quickly became a hit when it released in 2017 and is now a cultural phenomenon, with millions of people watching others playing the game on streaming platforms and celebrities and influencers promoting it online.

Fortnite has rapidly evolved from a popular multiplayer game into an online space where people socialize and big-name musicians host virtual concerts.

For example, Fortnite has hosted massive virtual concerts with artists like Travis Scott and Marshmello. Other companies, including Microsoft and Roblox, are also investing heavily in this trend.

But Epic is known for more than just Fortnite. The company’s Unreal game engine software powers many of the world’s top games. It also played a role in the film industry’s shift to virtual production during the coronavirus pandemic.

Sweeney wants its software tools to provide the building blocks, offering carmakers as an example: they can use Unreal to visualize their products in design and manufacturing processes and later to produce digital advertisements.

Fortnite added a Ferrari that players can drive in the game this July.

The company is working to “build one set of digital assets that can be deployed to film and television and in real-time games, scaling from high-end consoles down to low-end smartphones,” according to Sweeney.

Also, Epic is collaborating with all designers and manufacturers of such devices, he said.

According to Bloomberg's report, Epic’s metaverse strategy has two prongs: first is expanding Fortnite from a game with 60 million monthly active users to an experience that could reach a billion in the future, the CEO said.

Complementary to that, Epic wants to capitalize on its content-creation tools like the Unreal Engine for 3D graphics, “enabling all of the companies throughout the industry to have a real-time 3D presence.”

On that front, Epic will face stiff competition from Nvidia Corp., whose CEO is similarly optimistic.

Epic CEO Sweeney had a legal and rhetorical battle with mobile giants Apple Inc. and Alphabet Inc.’s Google over their locked-down app stores and payments. This is motivated by aspirations for the metaverse and ensuring there’s a fair playing field for the companies competing to create it.

Tim Sweeney praised South Korea for leading anti-monopoly push. “The metaverse is a term like the internet. No company can own it,” the Epic chief said.

The company has not officially endorsed a plan to participate in an IPO.

It seems that there will be no Epic Games initial public offering (IPO) soon since the company can raise enormous amounts of money without floating on a stock exchange.

While Sweeney remains the controlling shareholder, Tencent acquired a 48.4% outstanding stake, equating to 40% of total Epic, in the company in 2012. Under the current arrangement, Sweeney controls the company but has access to Tencent’s resources and capital.