SAN FRANCISCO -- Will Wall Street have a crush on King Digital Entertainment?
The London-based maker of the highly addictive smartphone game Candy Crush has filed paperwork with the Securities and Exchange Commission for an initial public offering of up to $500 million. It’s aiming to trade on the New York Stock Exchange under the “KING” ticker.
The numbers are sure to sound sweet enough. The company has posted big gains in the last couple of years.
In 2013, King reported $567.6 million on revenue of $1.88 billion, up from $7.8 million on revenue of $164.4 million in 2012.
But there’s a potentially sour side to that sweet success. All of this soaring growth was generated by just one game: Candy Crush, the hugely popular and quite profitable game which King launched on Facebook in April 2012.
An astonishing 93 million people play Candy Crush every day. It’s one of the most downloaded free games on Apple and Android devices. And get this: Candy Crush is responsible for 78% of King’s revenues.
So the big question for investors: What happens to the king of mobile games if the Candy Crush sugar rush crashes? After all, mobile game players are a seriously fickle lot.
The company is looking to hit it big again with other games such as “Pet Rescue Saga,” “Papa Pear Saga,” “Bubble Witch Saga” and “Farm Heroes Saga.” The top three of those -- Candy Crush Saga, Pet Rescue Saga and Farm Heroes Saga -- were responsible for 95% of its total gross bookings.
The business model is typical of an online gaming company: King makes most of its money from a small number of users who buy virtual stuff that give them a boost in the game. According to King, 4% of its users regularly buy virtual stuff.
That means King collected $1.48 in revenue and 39 cents in profit for each monthly user in the past quarter. The ranks of monthly users who shell out for digital extras fell by 847,000, even as King added 47 million new game players.
On the plus side: King’s business is driven by usage on mobile devices. In fact, 70% of its revenue comes from mobile users and its games have been downloaded on 500 million mobile devices.
What will be in the back of investors’ minds: The cautionary tale of Zynga which had a much ballyhooed IPO in 2011. Its shares have fallen more than 50%. FarmVille anyone?