The creators of Candy Crush, the ever addictive candy puzzle game, King Digital Entertainment is planning an initial public offering sometime this year that will give the Swedish based company an estimated valuation of close to $10 billion. Is it just me or does it seem a bit obscene that a simple candy puzzle game could create so much hype and generate so much revenue for such a little known company? Of course King does have other games in its stable (Pet Rescue Saga ring a bell?) but the worldly popular candy puzzle game is by far its greatest success to-date.
With the monumental success of Candy Crush over the last two years, 2013 revenues have grown over 11 fold (close to 1,150%) to $1.9 billion from just $164 million in 2012. Candy Crush has grown from a little known game where players are asked to complete different tasks, to an international sensation now attracting 93 million daily users worldwide. Although, its second most popular game (Pet Rescue Saga) attracted 15 million daily users, King is otherwise largely a one trick pony.
Although Candy Crush, and as a result King, has experienced much success to-date its target consumers, the younger generation, are a fickle bunch. What is popular one day is boring the next. Just look at Zynga, which became public in late 2011 on the back of its popular Facebook based game Farmville which drove its share price to $15 by March 2012 only to be followed by the inevitable crash which saw its share price crater to $2 a share by the following November 2012. Today, the company is still struggling to get back to its IPO price of $10.
I am not saying that you should not purchase shares of King when it does become public, but you should do so with capital that you are comfortable losing otherwise earmarked for speculation. Personally, my wife and I are both frequent players of Candy Crush but are both very careful with our money and therefore have never spent a cent on the game (though the temptation has always been there). Therefore, I personally would never purchase King shares. Further, with a proposed valuation of close to $10 billion, the market is already valuing the company at close to 5x revenues. Comparably, Zynga debuted with a valuation of roughly $7 billion with sales of $1.1 billion valuing it at over 6x sales so comparably speaking, King is coming to the market a bit cheaper. However, it could also be that the market has learned from its mistakes and has taken a more careful approach to valuing King. Further, given that Zynga actually decreased to below its IPO price shortly after coming to market, you can be certain that its advisors will be working hard to price its shares attractively and/or offer less shares in order to ensure a successful debut.
Even so, I would be highly skeptical in investing in this one...
With the monumental success of Candy Crush over the last two years, 2013 revenues have grown over 11 fold (close to 1,150%) to $1.9 billion from just $164 million in 2012. Candy Crush has grown from a little known game where players are asked to complete different tasks, to an international sensation now attracting 93 million daily users worldwide. Although, its second most popular game (Pet Rescue Saga) attracted 15 million daily users, King is otherwise largely a one trick pony.
Although Candy Crush, and as a result King, has experienced much success to-date its target consumers, the younger generation, are a fickle bunch. What is popular one day is boring the next. Just look at Zynga, which became public in late 2011 on the back of its popular Facebook based game Farmville which drove its share price to $15 by March 2012 only to be followed by the inevitable crash which saw its share price crater to $2 a share by the following November 2012. Today, the company is still struggling to get back to its IPO price of $10.
I am not saying that you should not purchase shares of King when it does become public, but you should do so with capital that you are comfortable losing otherwise earmarked for speculation. Personally, my wife and I are both frequent players of Candy Crush but are both very careful with our money and therefore have never spent a cent on the game (though the temptation has always been there). Therefore, I personally would never purchase King shares. Further, with a proposed valuation of close to $10 billion, the market is already valuing the company at close to 5x revenues. Comparably, Zynga debuted with a valuation of roughly $7 billion with sales of $1.1 billion valuing it at over 6x sales so comparably speaking, King is coming to the market a bit cheaper. However, it could also be that the market has learned from its mistakes and has taken a more careful approach to valuing King. Further, given that Zynga actually decreased to below its IPO price shortly after coming to market, you can be certain that its advisors will be working hard to price its shares attractively and/or offer less shares in order to ensure a successful debut.
Even so, I would be highly skeptical in investing in this one...
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