Fortnite: Gaining Potential Exposure To One Of The Most Popular Video Games Of 2018

 seekingalpha.com  8/12/2018 7:39:08 AM  2  Kevin Carter

Fortnite has become one of the most popular video games of 2018. The game was developed by Epic Games of Cary, North Carolina. Tencent Holdings holds a 40% stake in Epic. Investors can get partial exposure to Epic through purchase of Tencent (OTCPK:TCEHY) shares. Alternatively, they can purchase funds like EMQQ – the Emerging Markets Internet and Ecommerce ETF – which holds Tencent as of 7/31/18.

What is Fornite?

Fortnite is a video game developed and released in 2017 which includes different software packages featuring different game modes that otherwise share the same general gameplay and game engine. It’s more popular game is Fortnite: Battle Royale.

Fortnite Battle Royale is a player-versus-player game for up to 100 players, playing alone or in squads of two or four. Players airdrop from a "Battle Bus" that crosses the game's map without any weapons. When they land, they must scavenge for weapons, items, and resources, avoiding being killed while attacking other players. Over the course of a round, the safe area of the map shrinks down in size due to an incoming storm; players outside that safe area take damage and can be killed. This forces remaining players into tighter spaces and encourages player encounters. The last player or squad alive is the winner.

Individuals can play Fortnite for free. However, in order to advance through levels, players have to purchase a premium version of the game. Players can purchase battle passes which provide additional challenges and rewards and allow them to advance through the games levels more quickly. Additionally, players can purchase V-bucks which allow them to buy items such as skins, emotes, and other accessories for the game.

How Popular is Fortnite?

PCGamesN noted that internal sources at Epic Games reported that in less than a year, Fortnite has grown to over 125 million users worldwide. They also noted that Tencent reported that over 40 million players log into the game per month.

On 7/12/18, the download of the game’s Season 5 shattered Internet game traffic records. A blog by Akamai noted that the download generated 37 Tbps (terabytes per second) in Internet traffic. To put this into perspective, this level of traffic would be like downloading the average mobile game 2.8 million times per minute, according to Akamai. As a comparison, an article in Forbes noted that internet traffic generated by the 2016 Presidential election generated Internet traffic of 7.5 Tbps.

How Much Money Does Fortnite Make?

An article in Forbes reported that Fortnite pulled in a staggering $296 million during the month of April 2018, up from $223 million in March and $126 million in February, putting it squarely on track to being a billion-dollar game in its first year.

Recode noted that Fortnite generated more revenue in a single month than any other game of its kind. The free-to-play game hit a new revenue record of $318 million in May 2018. The article noted that Fortnite has brought in more than $1.2 billion in revenue, all of which comes from nonessential in-app purchases, for stuff like clothing and dance moves.

Potential Future Growth

Fortnite was launched on 4/24/18 in China through the company’s partnership with Tencent. According to gameindustry.biz, Tencent has pledged to invest more than $15 million to ensure that Fortnite is a success in China. According to the article, last year, Tencent laid out an ambitious plan to build a ¥100 billion esports industry in China by 2022. The article also noted that Tencent is also the Chinese publisher for Fortnite's biggest rival in the battle royale genre, PlayerUknown's Battlegrounds.

An article in China Internet Watch noted that China’s online gaming market reached 177 billion yuan (US$25.7 bn) in 2016 and is estimated to grow to exceed 232 billion yuan (US$33.69 bn) in 2019 according to data from iResearch.

According to Recode, growth could accelerate when Fortnite is released on Android this summer.

Summary

Tencent has a goal of growing its online gaming business. To that end, it purchased a 40% stake in Epic Games which developed one of the most popular video games of the year.

EMQQ – the Emerging Markets Internet and Ecommerce ETF – held Tencent Holdings as of 7/31/18. Purchasing EMQQ can provide investors with partial exposure to Epic Games and to the video gaming market in China.

Disclosure: I am/we are long TCEHY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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