By Waiting to IPO, King "Crushed" Their Chances

Jacob Harper |

On March 27, London-based King Digital Entertainment, the makers of the wildly popular app Candy Crush Saga, will price their stock offering and have an Initial Public Offering the following day. King’s IPO comes months after the first attempt to IPO was scuttled in December amidst fears that their game had been “too successful.”

In short, King feared that they would be unable to follow up on the massive success of Candy Crush, and any product afterwards would pale in comparison. While King has failed to produce a game with comparable popularity to Candy Crush, King has opted to go on with the IPO anyways.

King is often compared to Zynga (ZNGA) and with good reason. Like Zynga, King relies on a product that is expected to wane in usage over time. As opposed to services like, say Twitter (TWTR) and Facebook (FB) , customers eventually tire of Zynga and King’s games, necessitating the development of new products.

There is a key difference in that Candy Crush has been exponentially more popular than Zynga’s flagship product, Farmville, ever was. Additionally, Candy Crush’s addictiveness has been well monetized, with playing of the otherwise free game capped at certain levels, necessitating payments to continue.

While King generates significant revenue from Candy Crush, the game truly hit its apex last year, and sales have been waning. Despite some diversification, three-quarters of King’s revenue is still derived from Candy Crush. Fourth quarter revenues for King dropped 3 percent, and the company has already admitted that drop was attributable to “a decrease in Candy Crush Saga” gross bookings.

There is almost zero chance Candy Crush will buck the trend of every video game ever and suddenly, inexplicably become more popular after the decline begins. Zynga, likewise, has consistently failed to recover from the lack of a follow-up to Farmville. None of their subsequent games have come close in popularity to their early hit. An attempted venture into online gambling also faltered, leaving Zynga with a current valuation around half of their IPO.

King put off their IPO while they tried to figure out repeating Zynga’s sophomore slump. King still hasn’t figured it out, but they’re going forward anyways. While it’s not impossible for them to score another big win in the nascent mobile gaming industry, King is looking less like a tech play with legs and more like another Zynga.    

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Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 117.31 -0.12 -0.10 19,137,844
TWTR Twitter Inc. 18.23 0.00 0.00 14,040,001
ZNGA Zynga Inc. 2.92 -0.03 -1.02 16,162,859
RGFR Rangeford Res Corp 0.55 0.00 0.00 0

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