King.com, Maker of Candy Crush, files for IPO

Seems like a gutsy move considering King&#x27;s only really breakout hit was Candy Crush a game that will undoubtedly not be nearly as popular as it was in 2013, in 12 months time.<p>This is a smart move though, cash in while they still can and then jump out of the ship before it hits the financial iceberg and sinks. Unless they can release another popular game, I can&#x27;t see King being a worthwhile investment for anyone and the only people coming out on top will be a select few.<p>I don&#x27;t mean to sound cynical, but seems filing for IPO is the new trendy thing to do nowadays. Companies with serious flaws, King&#x27;s being they have one single product they can&#x27;t really iterate upon to keep relevant. For all we know though, this makes King stronger and they&#x27;ll release more popular games, seems they have the chops to pull off another hit again. Halfbrick did it like 3 times over, it&#x27;s not impossible.

Investors will have to be very confident that the company is capable of producing another huge smash hit. Generally the pattern has been cashing in on the hype of the <i>previous</i> smash hit, then falling into a sort of sophomore slump, then death by inches.<p>King has certainly squandered a decent chunk of its gaming-community good will by this whole candy&#x2F;saga trademark business. That probably doesn&#x27;t amount to a lot of its users, however, and even fewer of its paying users.

The shares are poised for a spectacular collapse as Candy Crush eventually slows down. However, there is a real business behind King that has nothing to do with flash-in-the-pan apps. King.com&#x27;s primary business was, until recently, a skill games tournament site. They are the largest such site in the world and have been in business for over 10 years. They still own it but have rebranded that part of the business as RoyalGames.com. Only about $20 million of their revenue came from this business in 2013, but that is the only predictable part of the company. The rest is sure to go down from where it is today.<p>If you buy the shares, base the value on the Royal Games revenue - not on mobile apps that will quickly lose steam. It&#x27;s about 1% of revenue. Take their IPO price, subtract 99%, and you have the appropriate valuation.

&quot;The company generates revenue by selling virtual items to a small fraction of its players who wish to enhance their playing experience&quot; should read &quot;The company generates revenue by psychologically manipulating players into spending money in order to progress through the game&quot;

This doesn&#x27;t have to end badly if investors price the shares appropriately during the IPO process.<p>Not all revenue is alike and investors will apply a higher multiple when revenue is sustainable. I see substantial risk in much of King&#x27;s revenue primarily because there isn&#x27;t enough track record to know if it is repeatable and if their sources of customer acquisition will continue in a profitable way.<p>A good comp company would be Zynga (ZNGA) who rose to ~$1.3b in revenue in 2012 and fell 33% to the $870m range in 2013 and they now claim revenue has stabilized. In Zynga&#x27;s case, I&#x27;d say much of their revenue was also indefensible yet they managed to hold on to much of it despite Facebook cutting off Zynga&#x27;s traffic. Zynga is currently valued at $4.2b or $2.9b in enterprise value when you deduct out the asset value on the balance sheet. That means Zynga trades at around 3.5x gross revenue which is similar to Supercell&#x27;s recent valuation in their sale to GungHo. Investors in Zynga made the mistake of assuming that Zynga&#x27;s revenue would continue its meteoric rise and priced it ahead of its actual revenue.<p>Therefore, in King&#x27;s case, a 3.5x revenue multiple on its 2013 trailing revenue might not be appropriate given that they already saw revenue decline in Q4 2013 sequentially. I&#x27;d therefore say that 33% (possibly as much as 50%) is at risk in King&#x27;s revenue so applying a very conservative 50% discount to their top-line would put it in the $1b range, and then apply a 3.5x multiple on top of that and King would be worth $3.5b in my book today. Given that I&#x27;m an investor and would expect a return on my money, and also that a lot of retail investors were burned with the Zynga IPO, investors might want a 10-20% discount on this price to ensure that it outperforms the market.<p>Relevant sources:<p><a href="http://recode.net/2014/02/18/here-comes-the-candy-crush-ipo-after-a-1-9-billion-year-king-gets-ready-to-go-public/" rel="nofollow">http:&#x2F;&#x2F;recode.net&#x2F;2014&#x2F;02&#x2F;18&#x2F;here-comes-the-candy-crush-ipo-...</a><p><a href="https://www.google.com/finance?q=NASDAQ%3AZNGA" rel="nofollow">https:&#x2F;&#x2F;www.google.com&#x2F;finance?q=NASDAQ%3AZNGA</a><p><a href="http://mitchlasky.biz/ea-and-the-future/" rel="nofollow">http:&#x2F;&#x2F;mitchlasky.biz&#x2F;ea-and-the-future&#x2F;</a><p><a href="http://mitchlasky.biz/should-venture-capital-fund-games-companies/" rel="nofollow">http:&#x2F;&#x2F;mitchlasky.biz&#x2F;should-venture-capital-fund-games-comp...</a>

So they don&#x27;t expect any additional growth anymore and have decided this is the point they need to cash in.

Waiting for this: <a href="https://news.ycombinator.com/item?id=3361212" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=3361212</a>

Can somebody outline how society would benefit if this company received &quot;public&quot; money?<p>This is not meant as a flame, I am generally curious.

I think they would have a very big plan ahead and they planned it for the IPO (or its a new trendy way for fraud) :)

One of the reasons the game is so successful is because of manipulating and simulating human behavior<p><a href="http://ireport.cnn.com/docs/DOC-1050994" rel="nofollow">http:&#x2F;&#x2F;ireport.cnn.com&#x2F;docs&#x2F;DOC-1050994</a>

Zynga 2.0.

The end result of this will be a fantastic shareholder lawsuit.

I don&#x27;t see this going good

Does anyone else thinks that IPOs these days are just a sophisticated form of fraud?