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King’s IPO Failed to Deliver the Candy Crush Success

Posted on Monday, Apr 21st 2014

Tech stocks on stock exchanges have taken a beating recently. After reaching a high in March this year, the Nasdaq had fallen 7% as of last week. Not only are the older tech stocks like Facebook seeing their stock tumble, but the recent IPOs aren’t faring well either. It appears that investors are finally showing some caution when investing into companies that boast of high valuation but offer little or no profits.’s Financials
Recently listed UK-based gaming company (NYSE: KING) is faring no better. King’s gaming portfolio includes a list of more than 180 games, but they are best known for their super hit game Candy Crush Saga. The company boasts of the top grossing gaming app on iTunes, Google Play, and Facebook. Unlike others like Zynga who used Facebook to attract user base, King had established a stronger and an independent mobile and web presence much earlier on. Today, King claims to have their games installed on more than 500 million mobile devices worldwide and boasts of over 1.2 billion daily game plays by more than 128 million daily active gamers. As of December last year, King had more than 324 million monthly active users playing their games.

King’s revenue model has not changed much since inception. When I spoke with King’s CEO Riccardo Zaccini a few years ago, he talked about their revenue model of charging gamers to pay for additional levels or for features such as the ability to play with other gamers. Following the same principle, King has managed to make serious money out of the casual games they publish. Even today, they do not rely on advertising dollars and instead focus on sales of virtual goods, which include additional game features. Of their user base, nearly 12 million average monthly users pay for these virtual goods that deliver an enhanced gaming experience and account for 4% of their monthly unique users as of December last year.

King’s strong games line-up has helped them grow bookings from $29 million in the first quarter of 2012 to an impressive $632 million during the final quarter of last year driven by the growth of Candy Crush Saga. Over the same period, revenues have grown from $22 million to $602 million. Candy Crush accounts for 78% of their revenues. The success of their gaming model can be garnered from the impressive growth in earnings which increased from a loss of $1 million in the first quarter of 2012 to profit of $159 million in the fourth quarter of 2013.

Till recently, King has only raised $9 million in capital. Their positive cash flows have helped them fund their growth so far. Recently, though, King listed on the NYSE under the ticker KING. Last month, they raised $500 million 22.2 million shares at $22.50 each. The listing valued them at $7 billion.

King’s International Growth
King is now looking at growing their presence in the high growth Chinese market. China has more than 500 million mobile Internet users and King announced plans to launch Candy Crush in the country through a tie-up with Chinese Internet leader Tencent. Last year, King had expanded Candy Crush successfully in South Korea and Japan.

King’s stock has tumbled since listing and is trading at $17.81 with a market capitalization of $5.6 billion. King may be operating a profitable business, but analysts are worried about Candy Crush’s capability to expand its market reach. Candy Crush’s revenues have fallen over the last two quarters, suggesting that the fad may be waning already. King would need another game which would be as big a hit as Candy Crush to ensure they maintain their lead, and there is no guarantee that they would be able to come up with another successful gaming fad.


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