IPO of Candy Crush Maker King Flounders, Surprising No One
The maker of Candy Crush Saga, King Digital Entertainment, got crushed on Wall Street on Wednesday. The company's shares fell 16 percent soon after its initial public offering, mirroring a previous mobile game maker's Wall Street woes.
U.K.-based King wanted to cash in on the phenomenal success of Candy Crush Saga, the multi-level match making puzzle game for mobile phones -- by taking the company across the Atlantic in an IPO on the New York Stock Exchange.
Shares in King were being offered by investors at $22.50 on Tuesday, according to a report by the Wall Street Journal, but opened already down 8.9 percent, at $20.50, on Wednesday. King's stock price fell to a low of $18.90 in the afternoon, and eventually closed at $19 per share, nearly 16 percent down in total. According to the WSJ report, only nine of the about 60 IPOs this year have opened lower than its initial price, and only two fell more than 10 percent.
King might be a victim of circumstance, as the market hasn't been very kind to internet stocks this week. For example, Twitter, Netflix, and Facebook have all lost more than 10 percent in trading over the past week. Brian Fenske, head of sales trader at New York-based brokerage firm ITG, spoke to the WSJ on the issue: "To be fair, [King] didn't debut in a good week for Internet stocks... I don't think it's people exiting or making a big call on the Internet sector, but we've definitely seen some profit-taking on some of the big winners."
However, the especially weak opening might be a result of investors' skepticism about companies with "one hit wonder" mobile games. King's IPO filing showed that, while the company generated about $1.8 billion in revenue in 2013, more than three quarters of that profit came from one source: Candy Crush Saga. And most of that was coming from a tiny percentage of "freemium" users who actually buy upgrades within the otherwise free game.
Zynga 2011, King 2014?
At the time King announced the estimated $500 million IPO, in late February of this year, some analysts put the company's value anywhere between $5 billion to as high as $10 billion. But at that time, we wondered if King's IPO would end up much like that of Zynga, the maker of the similarly trending casual gaming title, FarmVille.
In 2011, Zynga opened for public trading on the Nasdaq with a valuation of about $6 billion and a stock price of $11 per share, but fizzled below its IPO rate within the first 10 minutes of trading. Zynga now trades at about 50 percent of its IPO after failing to replicate the scale of FarmVille's success.
Although it remains to be seen if King suffers the same kind of long-term difficulties as FarmVille's creator, it turns out that King is at least getting the same kind of rocky start as Zynga, despite the company's attempts to downplay expectations in its SEC filing which comes off as almost a warning:
"If the gross bookings of our top games, including Candy Crush Saga, are lower than anticipated and we are unable to broaden our portfolio of games or increase gross bookings from those games, we won't be able to maintain or grow our revenue, and our financial results could be adversely affected," said King to potential investors when it filed for its IPO.
On Wednesday, it seems some investors took King seriously.
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