It seems as if every tale of a social gaming giant's busted IPO doesn't have to wind up with an unhappy ending. Shares of King Digital Entertainment (KING.DL) opened 6% higher this morning to hit $23.12. More importantly for market historian purposes, the Candy Crush Saga parent opened above its March IPO price of $22.50. Don't wait up for rival Zynga (ZNGA) to top its 2011 debut price of $10 anytime soon.
King Digital's been rolling in recent days. The stock soared 23% last week, fueled in part by bullish analysts. JPMorgan is excited about the app developer's pipeline of games, also encouraged by the prospects of returning money to shareholders given its healthy free cash flows. Wedbush is also pumped about its portfolio of games beyond Candy Crush Saga and its market dominance in the surprisingly lucrative free-to-play arena.
The analyst comments aren't a surprise. Wedbush was an underwriter in King Digital's IPO and JPMorgan was a lead underwriter. They handed over shares of King Digital to their prized clients at $22.50 a pop four months ago. Of course they're going to be bullish when the stock was in the high teens last week.
But it's OK to cut King Digital some slack here. There were signs that Candy Crush Saga's popularity had peaked during the third quarter of last year, but it has made some strides to show that it's more than just a one-trick pony. Yes, Candy Crush Saga accounting for two thirds of its gross bookings during this year's first quarter is still significant, but that percentage should continue to shrink as other diversions take over.
As of this morning, King Digital has three of the five highest grossing apps in the Google Play app marketplace as Farm Heroes Saga and Pet Rescue Saga join Candy Crush Saga among Android's biggest moneymakers. King Digital released Bubble Witch 2 Saga just a month ago and it's already the second most popular game download among the free choices for Android users.
Zynga didn't get to taste success for too long. It had more than one hit franchise at the time of its 2011 IPO, but revenue peaked at $1.3 billion in 2012. King Digital easily surpassed that milestone last year. It also helps that King Digital didn't have the kind of lofty expectations -- and valuations -- that Zynga had when it went public three years ago. When things got wobbly Zynga executives fled in droves. King Digital is holding up considerably better on that front.
The next few quarters will prove if King Digital is able to sidestep Zynga's curse. We'll see if Candy Crush Saga is in fact peaking, but we'll also see if its ballyhooed product pipeline is up for the task to keep revenue and gross bookings collectively moving in the right direction. Armed with cash and now bullish momentum it's time to give King Digital the kind of shot that it was never going to get back in March under Zynga's dark and long shadow.
