By Philip van Doorn, MarketWatch
Even if you’re not interested in video games, you might want to know how to make money off “Fortnite,” one of the fastest-growing games of all time.
“Fortnite” is made by Cary, N.C.-based Epic Games, which isn’t publicly traded. But Tencent Holdings /zigman2/quotes/204605823/delayed HK:700 -2.90% /zigman2/quotes/207908563/delayed TCEHY -0.24% /zigman2/quotes/202617460/delayed TCTZF +0.17% of Shenzhen, China, has a 40% stake in the company. Tencent and Epic are a perfect fit because Tencent is a worldwide distributor of games and a provider of various social-media services. Tencent has begun pre-registration for a Chinese version of the game after it caught fire in the rest of the world.
BAT vs. FAANG
Tencent is part of the “BAT” investment acronym, which also includes other Chinese companies Baidu /zigman2/quotes/209050136/composite BIDU +1.86% and Alibaba Group Holding /zigman2/quotes/201948298/composite BABA +2.04% You’ve probably seen plenty of headlines about the U.S.-based “FAANG” stocks, which include Facebook , Amazon.com /zigman2/quotes/210331248/composite AMZN +3.15% , Apple /zigman2/quotes/202934861/composite AAPL +1.62% , Netflix /zigman2/quotes/202353025/composite NFLX +2.91% and Google parent Alphabet /zigman2/quotes/205453964/composite GOOG -0.27% /zigman2/quotes/202490156/composite GOOGL -0.21% .
The BAT stocks, unlike the FAANGs, have an overwhelming government-approved presence in China, dominating ecommerce, internet search and electronic-payment services, while Tencent has the largest game-distribution platform in the world’s most populous country. The BAT companies invest in scores of technology startups.
The big game
On Monday, Jefferies analyst Timothy O’Shea discussed a recent conference call with a group of 12-year-old children who said “98% of their friends” were playing “Fortnite.”
“Fortnite” is a shooter game that is free to play online as an individual or part of a team and not specific to any device. One can play using a console-gaming system or a PC, tablet or phone. Epic’s business model includes offering players the ability to change their characters’ appearance (or dancing abilities, for example) if they are willing to pay. There are various in-game items that can be purchased, and plenty of peer pressure on “newbies” to part with plenty of pesos so as to appear serious about the game.
O’Shea said all of the children “were spending real money” in the game and were “playing fewer other games.”
“All of them purchased the Battle Pass, and said ‘Fortnite’ is a top-spending focus,” O’Shea said. The “Fortnite” Battle Pass offers players rewards when reaching game milestones.
“Fortnite” was initially released in July 2017, but the full, free, cross-platform release was earlier this year, so we’re still at an early stage of what seems likely to be an industry-changing phenomenon.
Epic is making large investments in online “Fortnite” tournaments, which will include big prizes for winners. O’Shea believes it’s possible that “city-based teams are the future of eSports,” and there’s already a market for fans to watch online video games.