The Telegraph has stirred up talks that leading social gaming company King has secretly filed for an initial public offering. King's Candy Crush is currently the most-played Facebook (NASDAQ:FB) game. Could this game maker avoid Zynga's (NASDAQ:ZNGA) IPO pitfalls?
The IPO rumors come as King, which is also known as Midasplayer, announced a new CFO who has experience bringing tech companies to market.But will King have a smoother path to monetization than the previous social gaming superstar?
King has been around since 2003 and has 150 games in its portfolio. According to The Telegraph, King had topline revenue of £300 million (or $481.2 million at current exchange rates) earlier this year.
The company first earned widespread attention for its Candy Crush title, which launched early last year. Candy Crush is a "match-three" game where players line up colored pieces to clear a board. Players see progress on a game map that also serves as a leaderboard.
Candy Crush has become the most played game on Facebook with 100 million monthly active users, or MAUs, according to AppData. King also takes the second slot in Facebook game popularity with Pet Rescue Saga, which was released last summer and now counts over 10 million MAUs. Farm Heros Saga takes the fourth place overall. And the active titles add up to give King over 147 million MAUs on Facebook alone.
But could King's rise to the top lead to a Zynga-esque fall?
Beware the path of Zynga
King's games operate under a similar "freemium" model as Zynga's titles. Monetization happens through either advertising or in-game transactions. Zynga's revenue mostly comes from the latter; advertising only accounted for $27 million of the company's $231 million in revenue for the second quarter.
Zynga hit a bumpy road soon after it went public in late 2011. The company had an umbilical cord tied to Facebook, which had its own IPO difficulties the following year. At the time of Facebook's launch, Zynga accounted for 12% of its revenue.So bad news for one company has historically resulted in a share drop for the other.
Then, there was the $200 million of OMGPOP, which only had the then-popular Draw Something to its name. Zynga purchased the company at the game's zenith and was left holding the bag when users soon lost interest. Zynga was forced to take a $96 million charge due to the acquisition.And the company has since shuttered what was left of OMGPOP.
The price Zynga paid for the OMGPOP acquisition was far too high for what was offered. Competitor Electronic Arts (NASDAQ:EA) paid about $650 million for PopCap but that brought in the wildly popular Plants vs. Zombies and Candy Crush predecessor Bejeweled. PopCap's games are mostly paid games and have led to merchandising opportunities.
But despite its missteps, Zynga's showing signs of monetization improvement. The company has struggled with a metric called average bookings per daily users, or ABPU, which measures the amount of money spent in-game per average player. But the second quarter showed an ABPU improvement of 6% on the quarter and 14% year over year.
Zynga launched a proprietary platform to try and stream some traffic away from Facebook, but the move came rather late in the process.King's platform has existed in some form since the company's founding. And players using the platform have the option of competing for real money prizes. So there's the benefit of not having to sway people away from Facebook after the games become popular.
But King might run into a similar monetization problem. Gaming industry analyst Nicholas Lovell told a conference audience last week that 70% of Candy Crush's most frequent players don't spend a penny.Ultimately, there's no real way to know how King is positioned until more data becomes available.
Foolish final thoughts
King's IPO could further hurt Zynga's shares. But it will take time to see whether the IPO actually happens, and the devils in the details of King's financials.
Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.