Valve Stock: When Will the Company Behind Steam IPO?

Founded in 1996, it didn’t take long for Valve to become one of the most talked-about companies in video gaming. Their debut game, Half-Life, was released to widespread praise and became the bestselling PC first-person shooter of all time.

Yet, Valve’s future is now dependent on selling other companies’ video games. That’s because the company operates the popular video game distribution service, Steam. With Steam boasting 95 million monthly active users and dominating the market for PC downloads, will investors ever get a chance to buy Valve stock?

Valve Corporation

IPO Interest

9.5

What is Valve Corporation?

Valve is the iconic video game company behind franchises like Half-Life, Team Fortress, and Dota. The company also operates Steam, the market leader in digital downloads of PC games.

Expected IPO Date:

No planned date

  • Reports of Valve’s worth vary wildly, but veteran video game industry analyst Michael Pachter reports the company’s worth at $10 billion as of early 2019.
  • Sales from Steam are also the subject of much dispute. However, third-party estimates from SteamSpy pointed to sales of $4.3 billion on the platform in 2017. Valve reportedly takes a 20% to 30% cut of game sales off Steam.

Bull Case

  • Steam launched in 2003 and quickly became the leading platform for video game downloads. While many companies have tried to challenge Steam, it remains dominant.
  • PC digital downloads were still only a reported 17% of PC game sales as of 2017. The market still has significant growth ahead.

Bear Case

  • Valve has very few employees relative to its size (reportedly just 360 employees as of 2016). With its small size and unique corporate hierarchy (the company has no managers), the company has struggled to release games on schedule.
  • Competition is increasing with Epic Games creating a digital store built around a 12% revenue cut.

Few companies in the world generate as much interest as Valve.

Headquartered in Bellevue, Washington, the company developed a rabid following after the success of Half-Life and its successor games such as Half-Life 2 and Portal.

Intrigue also follows the company because of their unwillingness to compromise on quality and frequent delays of anticipated products. After Half-Life 2 and its successor “episodes” received rave reviews, gamers waited more than a decade for a sequel that has never come. (In 2020 Valve released a VR-only prequel to Half-Life 2 called Alyx.)

Will gamers interested in Valve ever be able to buy a share of the company? We dive into Valve’s business and whether it will ever IPO below!

Valve: From Video Games to Steam

The release of Valve’s first game in 1998—Half-Life—became a dividing line for the PC gaming industry. First-person shooters were either before or after Half-Life. The game was one of the most universally acclaimed games of all time.

In the years that followed, it seemed Valve could do no wrong. The company hired a team of developers that created Team Fortress Classic, a team-based online multiplayer game that once again redefined video games. Then in 2000, Valve released Counter-Strike, which twenty years later was a franchise supporting 24 million active users.

In 2003, Valve launched Steam. Originally, Steam was mostly downloaded to provide updates for Valve’s games, but over time it became a platform for downloading third-party games. By 2007, Valve was signing major publishers like id Software and Square Enix Limited (formerly Eidos Interactive) to Steam, creating a true digital platform for game downloads and support.

The Bull Case: Why You Want Valve to IPO

Video games are the entertainment medium of the twenty-first century. Publishers like Activision Blizzard (Nasdaq: ATVI), Electronic Arts (Nasdaq: EA), and Take-Two Interactive (Nasdaq: TTWO) have all seen substantial gains in their shares across the past decade.

In addition, recent IPOs like Roblox (NYSE: RBLX) and Unity Software (NYSE: U) rapidly soared after their public listings. Many investors are eagerly awaiting news of when Epic Games stock will become publicly traded.

Valve owns several premier franchises. The company released its latest Half-Life installment in 2020, a VR game called Alyx. However, the real prize in that series would be the release of a full-fledged Half-Life 3, the announcement of which would instantly become one of the biggest stories in video gaming.

In addition, while many of Valve’s games are older, they remain popular. Counter-Strike: Global Offensive is one of the most popular esports games. Likewise, Dota 2 was released in 2013 but maintains a significant esports following. Its main tournament, The International, had a $34 million prize pool in 2019.

While the strength of Valve’s video game franchises alone would make it a compelling IPO, the company’s real value comes from Steam. 

By becoming the first platform to not only feature must-have games from its parent company (such as Half-Life), but also games from third-party publishers, Steam has become the dominant platform for distributing PC games. Thanks to trends like esports, PC gaming has been on the rise in recent years. As we noted earlier, with just 17% of PC gaming sales taking place digitally (as of 2017), there is tremendous growth potential in this market.

One only needs to look at Apple for an example of what having a digital platform can do for a company. In the last calendar quarter of 2020, the company’s services revenue (where App Store revenues are recorded) surpassed Macs, iPads, and wearables revenue. In addition, their services had a 68% gross margin.

Which is to say, owning platforms that can command up to 30% of revenue is a very good business at scale. Were investors able to buy a Valve IPO, they would likely pay up handsomely for the right to own a piece of Steam.

The Bear Case: Why a Valve IPO Could Go Sideways

The important thing to know about Valve is that it’s a quirky company. The company has no managers or bosses. Employees can “vote with their feet,” choosing to relocate from one project to another.

While this organizational system has clearly produced some incredible results, it also comes with downsides. For example, Valve has become so notorious for delaying games that the term “Valve Time” has become synonymous for the company being unable to hit stated deadlines.

In addition, in recent years the pace of the company’s production has slowed. After releasing Dota 2 in 2013, the company didn’t launch another major PC game until 2018’s Artifact. The game proved to be a major failure, quickly saw its player base drop 95%, and Valve ceased development.

In addition, in recent years Valve has made major investments in areas like virtual reality hardware—and even released a recent Half-Life entry as VR-only—that are risky. In 2015, Valve worked with several partners to launch “Steam Machines,” hardware running a Steam operating system developed by Valve. After 500,000 Steam Machines were sold, the project lost momentum.

Finally, while Steam has long been the dominant platform for PC gaming downloads, in recent years competition has ramped up. The most notable competitor is Epic Games, which launched its rival Epic Games Store in 2018.

The key selling feature of the Epic Games Store? It only takes a 12% cut of game sales, significantly undercutting Valve’s 30% cut. While Valve has many advantages remaining over Epic Games, this move could at a minimum put pressure on Valve’s margins as it is forced to compete with a well-funded competitor that publishes wildly popular games (Fortnite, for example!) that can drive users to its platform in droves.

When Can You Buy Valve?: Its Target IPO Date

Valve is currently privately traded and it has announced no intentions to go public. Valve founder Gabe Newell has said gaming companies that are public “End up with a totally different set of decisions.” That is to say, meddling in creative decisions by shareholders causes compromises Newell doesn’t want to see.

Given this, it’s unlikely Valve will IPO any time soon. While some secondary marketplace sites have pages for Valve, it doesn’t appear any shares of Valve have made their way onto secondary markets that can accommodate transactions in private companies for accredited investors.

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Valve Stock: Who Owns It Now?

Gabe Newell cofounded Valve, and reports indicate he is still a majority owner in the company (meaning he owns at least 50.01% of shares).

As of March 2021, Bloomberg estimates Newell’s wealth to be at $8.7 billion. Other ownership of Valve isn’t known. The company hasn’t taken on outside investment, so shares not owned by Newell are likely owned by past and present employees. Newell cofounded Valve with former Microsoft employee Mike Harrington, who left the company in 2000 but may also retain a significant stake.

Valve Stock Price and Potential Valuation

As a private company Valve’s stock price is unknown, but there are estimates of its valuation. Michael Pachter, a gaming analyst at Wedbush Securities told Bloomberg in early 2019 that Valve was valued at $10 billion.

That valuation could prove conservative, especially with the growth of video game companies during the pandemic. Between March 2019 and March 2021, video game companies saw share price increases of:

  • Take-Two Interactive: 99.6%
  • Nintendo: 113.4%
  • Activision Blizzard: 119.5%
  • Electronic Arts: 38.6%
  • Sony Corporation: 123.2%
  • Zynga: 89%
  • Sea Limited: 780.4%

In addition, NVIDIA (Nasdaq: NVDA) and Advanced Micro Devices (Nasdaq: AMD) are both heavily leveraged to the PC gaming industry and saw returns of 231% and 225% across the same timeframe.

Given the performance of these companies, it’s reasonable to expect that if Valve was worth $10 billion in March, 2019, it’s likely worth $20 billion or more today as PC gaming has grown rapidly during the pandemic.

What Stock Symbols Could Valve Choose?

While Valve has no plans to go public, if it did, it has a host of ticker symbol options to choose from. If the company were to list on the NYSE or Nasdaq, it could select:

·  VALV

·  HALF (in honor of Half-Life)

·  VA

Valve Stock: Would You Buy the IPO?

Unfortunately, it doesn’t appear there will be an opportunity to buy Valve stock any time soon.

With Steam likely producing massive profits on a yearly basis to both fund new projects (such as Valve’s push into virtual reality hardware) and also providing liquidity for employees, there’s very little need to take external funding.

If you’re intrigued by Valve’s position as a company with dominant gaming franchises, you may want to consider other alternatives like Take-Two, which owns the Grand Theft Auto series and trades on public markets.

If you’re looking for companies that possess digital platforms akin to Steam, that can be trickier. After all, with a reported 75% market share of PC downloads, Steam is the unquestioned leader in the PC gaming space.

Yet, Nintendo is able to offer a host of first-party games for digital download on the Switch and is creating a digital platform of its own. In addition, you could consider Microsoft, which is rapidly becoming the “Netflix of gaming” thanks to its Xbox Game Pass, which also works on PCs. You could also purchase NVIDIA, which makes its money off the graphics cards running PC games, but continues trying to push more into gaming software with GeForce Now.

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