Amidst Pandemic, Gaming Companies Prove to be Viable Investment

Amidst Pandemic, Gaming Companies Prove to be Viable Investment

by John Murray, Research Director

Digital games firm Roblox recently announced that it has submitted a confidential IPO filing with the Securities and Exchange Commission. The company, which was founded in 2004, has benefited significantly from pandemic-related trends, which haveseen many more consumers turn to gaming, not just as a way to pass time at home, but also as a means of escape from the worries and uncertainties of our current reality.

The Robloxonline platform incorporates a game creation system that allows users to program and deploy their own games, as well as play those built by others. This user-generated content model incorporates a freemium business element that is complemented by a virtual currency (Robux) for in-game transactions. Players can produce and sell virtual items, and Robux can be exchanged into real-world currency through the developer exchange system.

The Roblox SEC filing comes hot on the heels of last month’s IPO by Unity Software Inc., which provides software engineering tools that are used to create, run and monetize interactive content for numerous computer platforms and mobile devices. Unity’s tools are widely used in numerous industry sectors, including transportation, manufacturing, cinematics, architecture, construction, and educational technology.

Unity’s IPO underwriters Goldman Sachs and Credit Suisse, adopted an approach somewhat similar to the Dutch auction model that they had used for Google’s IPO. This multiple bid format allows the issuer to clearly identify the demand curve for shares, and the company can then pick a preferred initial price. Bidders above that price receive some shares, but the model allows the company to make additional share allocations to favored buyers.

Both Roblox and Unity were founded in the San Francisco Bay Area in 2004, which gave them a long runway in the private equity market before deciding to go public. Another videogame company with an even longer heritage is Epic Games, which published its first game in 1992. Epic’s primary product is Unreal Engine, a software engineering platform that competes directly with Unity’s suite of development tools.

Epic, which is based in Cary, North Carolina, has also produced numerous successful game series, including the currently popular Fortnite offering. Over its lifetime, Epic has attracted substantial investment funding, including a 2012 acquisition of a 40% ownership stake by Chinese conglomerate Tencent Holdings. More recently, the company received a strategic investment from Walt Disney Co. as well as additional funding from several venture firms including Kleiner PerkinsLightspeed Ventures, and Vulcan Capital. Another strategic investment of $250M this summer by Sony Corporation for 1.4% minority stake in Epic now values the company at $17.86B.

The ongoing challenges posed by pandemic-driven precautions, which encourage more usage of home entertainment products, not only assures the continued success of Roblox and Unity, but must surely make Epic Games an important unicorn to watch.

If you would like to learn more about innovative Pre-IPO companies, we invite you to register on the Linqto platform. You can download our free app on your Apple or Android device.

Join us for the next (virtual) Lunch & Learn on Wednesday, 10/28, featuring guest speakers, Michael DeLucchi and John Murray. The topic this week is “Crypto & Gaming.”

Bibliography:

Singh, Upneet. “Gaming Giant Roblox Confidentially Files for an IPO.” The Tech Portal, 12 Oct. 2020, thetechportal.com/2020/10/13/gaming-giant-roblox-confidential-ipo/

Smith, Sarah. “Roblox IPO: 6 Big Things for Roblox Stock Investors to Know.” InvestorPlace, 12 Oct. 2020, investorplace.com/2020/10/roblox-ipo-6-big-things-for-roblox-stock-investors-to-know/

Ghosh, Sanjoy. “Unity Sets the Ball Rolling with a $1.3Bn IPO Fundraise.” The Tech Portal, 18 Sept. 2020, thetechportal.com/2020/09/19/unity-ipo-fundraise/.

Chen, I-Chun. “Sony Takes $250M Stake in Fortnite Maker Epic Games.” L.A. Biz, 20 July 2020, www.bizjournals.com/losangeles/news/2020/07/10/