Maybe you haven't heard of Splitgate, but it's likely that your 13-year-old nephew has. The teleportation-fuelled arena shooter that is often described as "Halo meets Portal'' isn't exactly a household name yet, but that didn't stop investors from valuing the studio behind the game at an astronomical $1.5 billion as part of a $100 million round of investment. Not bad for a free game that started as a student project at Stanford.
It's no secret that the video game industry is bigger than ever, but it's sometimes difficult to measure what exactly "big" means in this context. A lot of people still tend to think of "big" video games as the mammoth open-world games that take a constellation of worldwide studios 3-5 years to make, like Assassin's Creeds of the world, or the recently-revealed God of War: Ragnarok. While it's true that those games can and do make a lot of money — according to one source, the 2018 God of War's revenue exceeded $500 million — online multiplayer games like Fortnite and "casual" games in the mobile space can make a lot more money than people realize.
Orders of magnitude — For example, as part of Epic Games' high-profile antitrust case against Apple, the publisher revealed that Fortnite made more than $9 billion in revenue in its first two years, eighteen times God of War's revenue estimate. That's a tremendous amount of money for just one game to make, but it's still chump change compared to the biggest players in the industry.
Over the past few months, in the wake of some controversial anti-tech moves by the Chinese government, gaming giant Tencent — which happens to own a 40% stake in Epic Games, by the way — has experienced some major fluctuations in its stock price. Back in July, the company's stock price went down by 23%, which erased a staggering $170 billion of value in just one month. If you follow games, you probably know that Tencent owns a piece of a lot of the biggest properties in the space, but it's hard to overestimate just how massive a presence it has in the industry right now. Then again, given that the Chinese government appears to be seriously questioning the social value of video games, that importance may be more tenuous than people realize.
Fuzzy math — It might seem a little strange that Splitgate developer 1047 Games — which is, after all, a fledgling studio in many respects — has been valued at $1.5 billion. As we noted above, that's 1/5th of the $7.5 billion that Microsoft paid for notable gaming publisher Bethesda and its child studios earlier this year, which includes Doom and Quake developer id Software. Then again, while it's clear that Splitgate is quite a hit with over thirteen million downloads, there are reasons to think that game company valuations are maybe not the most reliable measures out there.
In a recent piece for VentureBeat, journalist Dean Takahashi points out that game valuations are much more fluid than many gamers realize. For example, Discord was "valued" at $7 billion last year, but when Microsoft reached out to the company about a potential acquisition, the numbers they discussed were more like $10 billion — and some investors think it's worth even more than that. But it's also clear that newer companies are almost always valued higher than more-established companies, which is why Roblox is currently sitting at $54.9 billion while EA is at $40.6 billion.
So, the next time you see an eye-grabbing headline about a splashy valuation of a new company, maybe think twice before you believe the numbers.