Will Candy Crush leave a sweet or sour taste on its debut?
01:00, 24 mars 2014
· Av CMC Markets
Anyone who has an Android phone, iPod or iPad, or who has visited the iTunes store will have heard of Candy Crush Saga the smash hit online game that has taken the internet by storm over the last 12 months.
While the basic game is free, players have to pay for game add-ons and while the popularity of this game continues to drive revenues the prognosis looks positive. Revenues have grown from $22m at the beginning of 2012 to $603m at the end of last year.
This has prompted the game owners and makers of the game, King Digital Entertainment to consider an IPO, having seen how the fortunes of Facebook and Twitter have prospered since floating on the stock market in recent times.
The main concern remains the sustainability of the earnings stream given the firms heavy reliance on the popularity of this one game, amongst a stable of over 100.
The IPO values the company at around $7.6bn and is expected to raise around $500m with the shares expected to list between $21 and $24 a share on the 25th March.
This puts its valuation above that of more traditional games makers like Hasbro, which at first glance seems rather high and this has raised concerns that investors might get burnt in a similar way to investors who took part in the Zynga IPO a few years ago.
As with any valuation it is very much dependent on how investors perceive the company’s revenue growth prospects, and unlike Zynga which has had a torrid time since it launched in 2011 as interest in Farmville waned, interest in Candy Crush Saga still remains high, though there is a risk that it may well have plateaued.
With that in mind if King can’t come up with an equally popular sequel or another similarly popular game then the risk is we could see it go the same way as Zynga.
The key drivers will therefore be the company’s ability to come up with new compelling game offerings for a demographic that can have a low boredom threshold as mobile device usage continues to rise.
King is also profitable with a profit before tax of $714.3m in 2013, which is always a plus and the company has no debt.
CMC Markets is due to begin pricing King Digital Entertainment this week
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