Okay, so let's dive in a little bit deeper and not look at analysis of Epic Games valuation in comparison to a sector or an industry, but instead on more direct peer group companies.

We've identified four companies here that we think are pretty good comparable companies for Epic Games. We've got Electronic Arts, Roblox, Take-Two, and Unity Software, and we've grabbed all of our analysis data in relation to those from Felix as of April of 2025. If you've got access to the data package in Felix, then you can look at more up to date information to see if this analysis still stands. But let's answer the questions from the Epic Games CEO. They've asked us to analyze the enterprise value to EBITDA ratios and profit margins and revenue growth rates across the peer group.

And what we can see is that the enterprise value to EBITDA multiples are very widely spread out, and that's tied into, to a large degree, a very widespread also of EBITDA profit margins. So we've got a bit of a problem here. Are we going to value Epic Games on a 15 times EBITDA margin or a 44 times EBITDA margin given that both these companies in the same sector? Well, what it's possible to do in circumstances like this where there are very wide ranges of enterprise value to EBITDA multiples is to say, well, let's assume that these margins, whilst disparate at the moment, will converge over time to be a industry average EBITDA margin. And given that electronic arts is the big player in the sector at the moment, we might imagine that they're going to converge towards the Electronic Arts profit margin in the future. And if we were then to assume that EBITDA margins are going to converge over time, we could potentially alternatively use the enterprise value to sales multiple as the basis for our valuation.

This does depend heavily on the assumption of our profit margins converging over time, but also requires us to look a little bit closer at the companies we're using as well. And potentially we then could say, or Roblox looks like it's slightly of an outlier in relation to our enterprise value to sales ratios, and that's because it's more of a platform rather than a games developer like Epic Games.

The next question we're asked to take a look at is what we notice about Take-Two and Unity's enterprise value to EBITDA multiples and their revenue growth rates.

And what we can see is that they have a very similar multiple enterprise value to EBITDA multiple, but really different revenue growth rates despite having the same margin. And given that our revenue growth rate is super important in driving valuations to these companies, it seems quite strange that we've got this very big divergence in their revenue growth rates despite having very similar valuation multiples. Well, one thing that could be caused by is m and a activity, and what we would be able to find out if we dived a little deeper into Take-Two and Unity's numbers is that take two's revenue growth rate is exacerbated because of a planned acquisition of Gearbox in 2025. That gives us an overly inflated revenue growth rate, whereas Unity have disposed of some business segments, and as a result, that's giving us a somewhat depressed revenue growth rate. If we look further forward into Unity's forecast revenue growth for 26 and 27, we would find that that is also above 9% for both of those two years. So the takeaway from this is that if we're using revenue growth rates to assess valuation multiples, we've got to make sure that we only account for organic growth in these revenue growth rates, or we use pro forma earnings in the multiples.

Our final step is then to go on and calculate what we think a valuation for Epic Games might be. And to do that, we've been asked to pick two companies that we think are closest to Epic Games in terms of their growth rates. We said that Epic Games' growth rate was about 5% for the next two years, and as a result, we might well say therefore, that given the information we have here, Electronic Arts and Unity Software would fit best in terms of revenue growth and profit margins. If we're going to be using our enterprise value to sales multiple, then we want to look at the average of what we've got for Electronic Arts and what we've got for Unity. So that's the average of 5.4 and 5.8, which we can see to be 5.6.

And then if we divide this by Epic Games forward profit margin for 2025 of this 25.5%, that'll give us an implied enterprise value to forward EBITDA multiple.

What does this mean in terms of a valuation for Epic Games as a whole? Well, we can take this valuation multiple, multiply it by the forecast revenues for 2025, our forward year, and multiply this also by our expected EBITDA margin. Given that we are using the 22 times EBITDA multiple, this gives us an overall valuation for Epic games of around $34 billion.