King Digital IPO draws scrutiny after high-profile gaming failures
Candy Crush maker eyes US$7.6b after other game firms fail to live up to promise
King Digital Entertainment's colourful Candy Crush Saga has gone viral on smartphones worldwide, but the company may struggle to replicate that enthusiasm with its US$7.6 billion initial public offering today.
The flotation will be closely watched in the US$17 billion mobile gaming industry, which is keen to emerge from the shadow of Zynga, which has lost half its value since its 2011 IPO valued it at US$8.9 billion.
While King has drawn plaudits for catching the mobile gaming wave with the most downloaded free app and becoming the top revenue producer of 2013 on Apple's app store, it relies on its marquee game for three-quarters of its revenue.
"The red flag for this IPO is that King's revenues and fortunes are built on one game," said Michael Yoshikami, chief executive of Destination Wealth Management. "I would be inclined not to invest in stock like this."
When upstarts like King and Zynga go public with valuations approaching those of more established players in the technology space, "it's all about when (the tech bubble) is going to pop", Yoshikami said.
Even if King, which was founded in Sweden a decade ago, pulls off a strong debut, the real test will be the stock's future staying power.
King's debut on the Big Board will be closely watched by rivals like Kabam and Kixeye - known for strategy games like Kingdoms of Camelot and War Commander - which are expected to seek market listings or new financing.
Investors warn of the dangers of an industry where games like Draw Something, from Zynga's OMGPop studio that was shut down a year ago, can top the charts and then quickly fizzle. Such worries may have dissuaded others. Rovio, maker of the still-popular Angry Birds franchise, has yet to pursue an offering, for example.
While King's revenue soared more than 1,000 per cent last year from 2012, fourth-quarter revenue fell 3 per cent to US$602 million. King said it reflected "a decrease in Candy Crush Saga gross bookings", though gross bookings of other games rose.