Last year, the Warsaw Stock Exchange became the global leader in the number of gaming companies listed, surpassing the South Korean and Japanese stock exchanges, renowned for serving the technology sector. Currently, around 60 gaming companies operate on both exchanges, 12 of which debuted last year, a difficult year for most listed entities. The Warsaw Stock Exchange, which has been stagnant for several years, is regaining its former energy thanks to new investors interested in the gaming industry. Investors are confident that the coming years will bring further growth for gaming companies, especially in the mobile gaming segment, which has been enjoying increasing popularity in recent months.

What prompts gaming companies to decide to debut, primarily on the New Connect market? Why do they take this step when interest in the stock market by other companies declines each year?

Undoubtedly, the same issues that attract others to the stock exchange are important to these entities. These include benefits such as:

• ease of obtaining capital – the main reason for the decision to enter the stock exchange is usually the ease and availability of sources of obtaining capital, mainly long-term, as well as the possibility of further share issues in the future,
• increased credibility – listed companies are perceived on the market as more credible and reliable, with a more stable position,
• the ability to perform a market valuation of the company – investors and analysts conduct a market assessment not only of the current financial situation, but also of the company's strategy and intentions, dividend policy and its future development,
• Increased creditworthiness – public companies, due to their greater transparency and the requirement to publish and submit their financial statements for expert review, are viewed more favorably by banks as potential borrowers. They typically receive higher debt limits and better credit terms than other companies.

However, what seem to be the key arguments for companies from the game-dev industry to go public are:

• the possibility of creating share-based incentive programs – such programs allow the company to attract talented creators and collaborators and contribute to maintaining long-term cooperation with them,

and

• the opportunity to promote and increase the prestige and recognition of the brand – the presentation of the company during the public offering, increased interest in the company during and after the debut, meetings with investors and media interest translate into strengthening the brand and increasing its recognition.

When deciding to go public, it's also important to consider the downsides of this process. The most significant include:

• IPO costs – these are the biggest concerns before entering the stock exchange. Before deciding to go public, the potential profits from the issue and its overall cost should be carefully calculated. Typically, the offering cost is a few percent of the offering value. It's assumed that the percentage of costs decreases as the issue value increases. It's important to remember that subsequent share issues will have significantly lower costs.
• the need to adapt internal documentation and procedures to the requirements for public companies – companies entering the public market must adapt their structures and internal regulations to legal provisions and conduct rigorous financial reporting, which often requires changing their organizational structure,
• Disclosure obligations – public companies must publish periodic reports – quarterly, half-yearly, and annual, with the annual and half-yearly reports subject to audit by a statutory auditor. They must also promptly publish current information in the event of events that may affect the value of shares,
• the need for transparency of undertaken activities – the need to publish information about the company means that not only investors but also competitors have access to financial and strategic information important for the company.

For some companies, especially startups, another disadvantage is the need to dilute capital, which may result in current shareholders losing control of the company.

Delving into the current market situation in the industry, which has further expanded during the COVID-19 pandemic, analysts predict that the market will reach another record high in 2023, reaching $200 billion.* The gaming industry is currently generating significant interest among investors, and the sector is developing extremely dynamically. Therefore, we can expect that the trend of game developers entering the regulated market we're observing will not only continue but likely expand.

https://newzoo.com/products/reports/global-game

This alert is for informational purposes only and does not constitute legal advice.

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