Emerging Titans: The Gaming Companies Set to Dominate 2024

The Breakout Gaming Companies of 2024‍

Inspired by Semil Shah’s insightful predictions for breakout tech companies, we have curated our own selections for 2024’s breakout gaming firms across two classifications: Content and Tech & Platform.

‍Content: Game Science (Black Myth: Wukong)‍

‍Black Myth: Wukong, launched in August, is projected to have sold 21.5 million copies and raked in $940.7 million in gross earnings this year (Gamalytics), leading all new game releases in 2024. This is remarkable, particularly as Black Myth: Wukong represents China’s inaugural AAA game released internationally. The title reached a peak of 2.4 million simultaneous Steam players just after its launch, the highest of any game this year. The player count for PlayStation remains unclear, although DiscoverGameCo estimates that the Chinese PS5 player community for Black Myth: Wukong exceeds 3.5 million.

Black Myth: Wukong is inspired by Journey to the West, a celebrated Chinese tale of adventure, mythology, and valor. The game draws heavily from the rich lore and cultural themes that are well-established throughout China, which likely contributed to its status as one of the most eagerly awaited titles in the country over the past several years. This afforded it widespread appeal as a game developed by China for China.

The development of the game was undertaken by Game Science, a previously less-known studio founded by a robust team from Tencent. CEO and founder Feng Ji is recognized as a well-known, but contentious figure within China’s game development industry. By 2018, four years post-establishment, Game Science had only experienced moderate success with three mobile games. On the surface, it might appear that Black Myth: Wukong was a last-ditch effort for Game Science. However, the game is in fact a spiritual continuation of Asura Online, an MMO the team worked on at Tencent, again based on Journey to the West. Although Asura Online enjoyed initial success, a substantial portion of the player community was alienated by the introduction of microtransactions intended to improve the game’s revenue structure. Shortly thereafter, Feng and his colleagues left Tencent to establish Game Science.

For Feng, creating a game based on Journey to the West may have always been part of the vision. Throughout the six years dedicated to developing Black Myth: Wukong, Game Science embraced the artistry of game creation, incorporating voice actors, utilizing motion capture, and reconstructing historical Chinese landmarks within the game. In contrast to many leading titles this year, Black Myth: Wukong stands out as a premium, single-player experience, and constitutes an original release (not a sequel). These aspects seemingly impose limitations on the game:

• Single-Player: Unlike multiplayer experiences, single-player games lack direct network effects (where increased engagement enhances the value for all players).
• Premium Paid: Opposite to Free-to-Play games, a higher entry barrier exists since users cannot sample before purchasing. This necessitated Game Science to develop a complete game from the beginning, contrary to recent game development trends that depend on continuous content updates (i.e., Live Operations).
• Original Release: Most leading game titles are established franchises with strong brand awareness that can be leveraged for consumer marketing. Alinea Analytics estimates that about $943 million in gross revenue was generated by Steam from the top 10 sequels alone. This is similarly applicable to the film industry: in 2024, the only film within the USA’s top 10 list that is not a direct sequel was Wicked.

Despite these evident hurdles, Game Science successfully released an extraordinary game. With a ~$70m budget, a sharp understanding of the local Chinese market, and the utilization of an underexploited IP, Game Science produced the most accomplished new video game of 2024. We anticipate that similar achievements will remain within reach for independent developers. Prior to the launch of Black Myth: Wukong, we discussed the Era of the Indie Game: the average ratings for indie creations and AAA titles have converged, and the democratization of tools has empowered indie creators.

‍Tech & Platform: AppLovin

‍Though not a startup, no other tech & platform gaming company has experienced the explosive growth that AppLovin has in 2024. Their stock soared from $38.78 on January 1st to $323.83 on December 31st (+735%), establishing $APP as the top-performing stock on the Nasdaq 100. This performance built upon impressive gains in 2023 of 260% from $10.78 at the year’s inception. Overall, AppLovin has risen 2,904% over the past two years and now boasts a market capitalization of $118 billion.

AppLovin functions as an advertising monetization platform for mobile games and applications. The enterprise was established in 2012 by Adam Foroughi, John Krystynak, and Andrew Karam while operating under the radar. At the time of its launch, they had already acquired 300 clients, including notable companies such as Spotify, OpenTable, and Groupon. By 2016, bolstered by robust growth within their advertising network sector, they were gearing up to sell the business to a Chinese private equity firm, Orient Hontai, for $1.4 billion. The acquisition eventually fell through due toresistance from CFUIS. Consequently, AppLovin opted to sell 9.98% of the enterprise for $140 million and embraced an $841 million debt investment from the consortium, aiding the founders in steering the company towards an IPO.

In 2018, AppLovin launched Lion Studios, an in-house mobile gaming creator and publisher. This move caught many in the sector by surprise as it placed AppLovin in direct rivalry with its own clients, other game developers. In theory, this could enable Applovin, which operates the mediation platform, to favor its first-party titles. What Adam and his team genuinely sought was the first-party data from games to enhance their ad-network effectiveness, particularly its AI-driven Axon engine. While numerous mobile game developers expressed annoyance and questioned if Lion Studios was receiving special treatment from AppLovin, ad-network performance showcased significant improvement owing to the integration of first-party data. Regarding ad monetization, performance (the highest CPM for ad-driven monetization or the minimal cost to acquire new users) is of utmost importance, thus AppLovin clients continued their association as it remained the premier solution in the industry.

AppLovin became public in early 2021 with a market capitalization of approximately $23 billion (CNBC). That same year, Apple phased out IDFA (Identifier for Advertisers), eliminating the capability for advertisers to consistently monitor users for ad targeting, measurement, and attribution without clear user approval. In efforts to mitigate these IDFA phase-out perils and expand their business portfolio overall, AppLovin proceeded to acquire Adjust (a mobile app performance platform) as well as MoPub (an advertising exchange owned by Twitter), both transactions valued at around $1 billion.

While these acquisitions contributed positively to the business and offered some insulation against IDFA depreciation, they did not wholly shield the company from the imminent threat posed by Unity’s proposed merger with IronSource in June 2022 (another app monetization firm). A merged Unity and IronSource would, theoretically, possess the first-party data (from Unity) and ad network (from IronSource) to provide a formidable alternative to AppLovin. This situation was so alarming for AppLovin that they proposed to acquire Unity in August 2022 for as much as $20 billion (an 18% premium) contingent upon the abandonment of the IronSource transaction. However, Unity stakeholders turned down the proposal. Ironically, Unity made several unwise strategic choices (notably introducing a pricing model centered on a “runtime fee” that eroded trust among developers) and, by the conclusion of 2023, had removed CEO John Riccitiello. Presently, Unity’s market capitalization is $9.6 billion; had Unity shareholders accepted the offer, their share of the combined entity might have been valued at over $50 billion.

While Unity has faced difficulties over the past two years, AppLovin returned to a focus on solid business fundamentals. Their narrative throughout the years has been characterized by a strong product-market alignment during the mobile boom, astute strategic choices, and some short-term hardships paving the way for remarkable long-term advantages. So, what catalyzed the stock performance in 2024? For starters, revenue and profits have maintained an upward trajectory for the firm. They surpassed the $1 billion threshold in quarterly revenue during Q1 of 2024, escalating that to $1.2 billion for Q3 (13% growth); concurrently, profits surged from $236 million to $434 million (84% growth). Revenue from Software Platform, a significant growth driver, increased 66% quarter over quarter, and EBITDA margins improved from 72% to 78% (Applovin). Beyond the solid financial results and enhanced projections, investor outlook seems optimistic about the beneficial impacts of AI across the company, supporting personalized creatives and advancements in their technology stack.

Insights: Game Science (Black Myth: Wukong) and AppLovin emerged as the standout gaming firms of 2024 across content and technology & platform. Black Myth: Wukong generated immense anticipation, yet surpassed all expectations to become the top-selling new title of 2024, propelling Game Science as an independent creator to the forefront of China’s gaming landscape. AppLovin, although a notable name that rose alongside mobile’s ascent in the 2010s, enjoyed the benefits of an exceptionally solid fundamental operation and impressed public market investors with strong financial performance throughout the year. We are eager to observe how they leverage their momentum as they approach 2025.