Candy Crush's IPO Won't Be the Next Zynga

King Digital files its IPO today. It's not great, but it's not as bad as you think.

Feb 18, 2014 at 12:53PM

We're finally getting our first glimpse into the financials of Candy Crush creator King Digital Entertainment. The Irish digital gaming speedster filed its IPO this morning, and the growth has been explosive.

There will be plenty of comparisons to Zynga (NASDAQ:ZNGA) in the coming weeks, given how that particular IPO imploded, so let's kick things off by saying that Zynga has never been this popular. 

King's gross bookings soared from $181.6 million in 2012 to nearly $2 billion last year. Zynga's gross bookings peaked in 2012 at $1.15 billion before crashing to $716 million last year. King's been profitable over the past two years -- unlike Zynga.

There's also the sheer volume of King's appeal. An average of 128 million users fired up a King game on any given day in December, checking in an average of 1.2 billion times per day. This is clearly a play on the growing popularity of smartphones and tablets, as 73% of its gross bookings are generated from mobile devices. 

Yes, King Media can be accurately called a one-trick pony. Candy Crush Saga is drawing 93 million daily active users, generating 1.085 billion game plays a day. King's second most popular game is a distant silver medalist, as Pet Rescue Saga draws just 15 million daily active users and 129 million average daily game plays. The next three most popular diversions combined draw as much gamer activity as Pet Rescue Saga. King's been trying to use the success of Candy Crush to promote its other apps, but players seem to stick to what they like.

It's fair to say that Zynga had a deeper bench at the time of its IPO with FarmVille, Words With Friends, and Mafia Wars. However, it's also worth repeating that all of Zynga's horses weren't enough to ring up the same kind of bookings and revenue as King is doing with a single title these days.

Things aren't perfect at King. Beyond fears that it's all riding on a single game in a market that has proven finicky, there's also the legitimate concern that King itself is starting to peak. Quarterly revenue, gross bookings, profit, adjusted EBITDA, and monthly unique payers all declined from the third quarter of last year to the fourth quarter. Don't hold out for this as a seasonality blip, since all of those metrics improved sequentially between the third and fourth quarter of 2012. 

These are trends that the market will watch closely, naturally, but it doesn't mean that King will implode as an IPO the way Zynga did. It's all about valuations and expectations. Zynga hit the market at what seems to be a low price of $10, but given the large number of shares outstanding, was actually at a market cap of roughly $7 billion. We still don't have pricing information on King, but it will likely carry more reasonable multiples as a result of the market's distaste for Zynga. Fears of King having just one hot game and the sequential declines during the holiday quarter will also keep underwriters honest in pricing this one. The red flags will be priced into the IPO, unlike Zynga, which hit the market more on hype than substance. 

King has its challenges, but it's better positioned than you might think for an IPO that will probably be soberly priced.


Source: King Digital Entertainment.

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