‘Candy Crush Saga’ Maker Publicly Files its IPO; King Digital, Which Earned $567.6 Million in 2013, Seeks Multibillion-Dollar Valuation

February 25, 2014 Leave a comment

‘Candy Crush Saga’ Maker Publicly Files its IPO

King Digital, Which Earned $567.6 Million in 2013, Seeks Multibillion-Dollar Valuation

SVEN GRUNDBERG, TELIS DEMOS and BEN FOX RUBIN

Updated Feb. 18, 2014 10:41 a.m. ET

King Digital Entertainment PLC, the maker of the popular “Candy Crush Saga” smartphone game, said Tuesday that it filed for an initial public offering of up to $500 million on the New York Stock Exchange.

The company hasn’t yet decided on an IPO price or stock-market valuation, people familiar with the matter said. But the company is aiming for a multiple of earnings on par with gaming companies such asElectronic Arts Inc. EA +1.74% andActivision Blizzard Inc., ATVI +0.91% a person familiar with King’s thinking said. That could peg the company at roughly $8 billion to $10 billion, depending on what investors predict for next year’s earnings.

King intends to apply to list on the NYSE under the symbol “KING.”

King, with offices in London and Stockholm, has risen to prominence amid the rapid rise of phone-based games for Apple Inc. AAPL +0.95% ‘s iPhone and phones running GoogleInc. GOOG +0.47% ‘s Android operating system.

King is best known for it hugely popular and profitable Candy Crush game, which was launched on Facebook Inc. FB -0.69% in April 2012. The game has been leading top-grossing games charts and has been one of the most frequently downloaded free apps from the iPhone’s App Store and Google’s Play.

The company said it intends to allow some of its shareholders to sell into the IPO, according to the filing. About half of the company is owned by Apax Partners, a European private-equity firm, and 10% by Riccardo Zacconi, co-founder and chief executive. Another 8% is held by venture-capital firm Index Ventures.

In its filing, King said the company has posted enormous growth in a few short years. In 2013, the company reported a profit of $567.6 million, up from $7.8 million in 2012. Revenue jumped to $1.88 billion, up from $164.4 million.

By comparison, Zynga Inc., ZNGA +3.90% another top games maker, had revenue last year of $873 million, while Finland’s Supercell Oy reported revenue of $892 million. In October, Japan’s SoftBank Corp. 9984.TO +4.03% bought a 51% stake in Supercell for $1.5 billion, the largest-ever investment in a mobile game company.

Royal Returns

King has shot to prominence in recent years along with other mobile game makers.

Revenue in $ thousands 2010 2011 2012 2013
King 58,448 63,901 164,412 1,884,301
Supercell 200 101,000 892,000
Zynga 597,459 1,140,100 1,281,267 873,266

Source: the companies

King, founded in 2002, has been around longer than both Zynga and Supercell. Candy Crush—a colorful and addictive puzzle game that reaps revenue from in-game “power-ups”—is being played by 93 million people every day, and is played more than a billion times every day, King said in its filing.

King said its mobile games have been installed 500 million times in total, from the launch of its first mobile game, “Bubble Witch Saga,” which it released for mobile phones in the summer of 2012.

The big question: How sustainable is that growth?

Overshadowing any King IPO will be the Zynga’s experience, which listed in 2011. Zynga shares have performed poorly since their debut, falling more than 50%, as investors question whether it will be able to reliably produce hit games for mobile devices like it previously did for Facebook.

The company’s revenues fell over the course of 2013, and the company has been posting losses for three years straight.

King will likely face investor questions about what differentiates it from Zynga, and how it can continue to match the fickle tastes of mobile gamers.

In its filing, King acknowledged “a small number of games currently generate a substantial majority of our revenue.” Specifically, in the fourth quarter of 2013, its top three games—Candy Crush, “Pet Rescue Saga” and “Farm Heroes Saga”—accounted for 95% of its total gross bookings, it said. Candy Crush, in particular, accounted for 78% of its total gross bookings.

“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,” the company said in its filing.

Though hit titles can be fleeting, the mobile gaming business still offers significant opportunity. Mobile and tablet games globally were estimated to have produced revenue of $12.2 billion last year, according to EMarketer Inc., a market research service. That would be a 34% jump from 2012.

And recently, King showed it is no one-hit wonder. Last year, it launched a new game, “Papa Pear Saga,” that joined Candy Crush in the 10 most-downloaded apps for Apple devices in December, according to AppAnnie, which tracks app downloads and revenues.

King said it chose J.P. Morgan Chase JPM +0.72% & Co., Credit Suisse Group AGCSGN.VX +0.57% and Bank of America BAC -0.78% Merrill Lynch to take top roles in the IPO.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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