Tech

Fortnite Creator Epic Games Valued at Nearly $15 Billion

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People crowding the display area for the survival game Fortnite at the 24th Electronic Expo in Los Angeles on June 12


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frederic j. brown/Agence France-Presse/Getty Images

Epic Games Inc., the creator of the smash-hit videogame “Fortnite,” is valued at almost $15 billion as part of a major new investment round, according to people familiar with the matter.

The company on Friday announced investors have purchased $1.25 billion in stock. People familiar with the matter said not all of the money is going directly to the company. A portion of that amount represents shares being sold by existing stakeholders who are cashing out some of their investment.

Epic had no further comment on the investment.

The company said the new investors represent people at the forefront of competitive gaming and live gaming events, areas that have elevated the industry’s visibility. The new investors include traditional investment firms

KKR
,


KKR -2.42%

Kleiner Perkins and Lightspeed Venture Partners, as well aXiomatic, which owns the competitive-videogaming organization Team Liquid.

Epic already counts China’s

Tencent Holdings
Ltd.


TCEHY -5.22%

and

Walt Disney
Co.

as investors. Tencent said in 2012 it paid approximately $330 million for a 48% stake in Epic.

“Fortnite” vaulted to the top of the more than $100 billion industry by putting a cartoonish spin on the classic shooter genre. In its “Battle Royale” mode, 100 players compete to be the last team or player standing, instead of players endlessly roaming a battlefield offing each other.

Epic released the mode free, but makes money by selling virtual costumes and dance moves for the game’s characters. The company has raked in more than $1 billion in revenue from these so-called microtransactions over the past year, according to estimates from SuperData.

The game’s popularity has fueled a cottage industry of videogame tutors and knock-off modes in new games from bigger rivals such as

Activision Blizzard
Inc.

In its earnings report this week,

Microsoft
Corp.

name-checked “Fortnite” as a contributor to strong earnings in its gaming division.

The videogame industry is on a tear. Annual investments in game startups and closely held companies exceeded $3 billion globally for the first time earlier this year, according to Digi-Capital LLC said. So far this year, they have topped $5 billion, according to the tech advisory firm.

The potential payoff for early investors can be significant. In 2016, Tencent and its partners acquired Supercell Oy, the Finnish maker of “Clash of Clans,” for $8.6 billion. The prior year, Activision Blizzard Inc. bought “Candy Crush Saga” maker King Entertainment for $5.8 billion.

The game industry’s biggest players also have grown substantially. In the U.S., share prices for the top publicly traded game makers by market capitalization—Activision Blizzard,

Electronic Arts
Inc.

and

Take-Two Interactive Software
Inc.

—have more than doubled. Earlier this week, Take-Two’s stock popped nearly 10% on strong early reviews of its latest big release, the Western shoot-’em-up “Red Dead Redemption II,” a game that could rival “Fortnite” for players’ time and money.

Much of the videogame industry’s growth has been fueled by in-game purchases of virtual weapons and other goods common to mobile apps, as well as online components such as downloadable side missions in console and PC games that can suck in gamers for countless hours. “Fortnite” checks the box for both.

The gaming industry, though, also has faced hefty criticism over its use of tactics for keeping players hooked, including offering rewards for frequent logins and tapping into people’s fears of missing out with limited-time offers.

“Fortnite” had attracted more than 125 million players as of June, according to Epic. After conquering basements and living rooms, the company is eyeing a deeper move into competitive gaming, known as esports. Epic recently pledged $100 million in “Fortnite” tournament prizes.

There are some signs of “Fortnite” fatigue. Last month, fans clocked in 104 million hours watching the game being live-streamed on

Amazon.com
Inc.’s

Twitch, down from 149.3 million hours in July, according to Newzoo BV. Still, it remained the No. 1 most watched game on Twitch as of September, a rank it has held since March.

Epic, which is based in Cary, N.C., was created by Tim Sweeney in his parents’ basement in 1991. In addition to “Fortnite,” it is known for developing the Microsoft Corp. published series Gears of War and for its Unreal Engine, a suite of tools for developers use to make videogames and other digital entertainment.

“They have built a sustainable business,” said Jefferies analyst Tim O’Shea. While “Fortnite” is no longer “as hot as it was in the summer, [Epic is] still doing really well. No doubt people will be playing this game for years to come.”

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Katie Roof at katie.roof@wsj.com

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