Candy “Crushed” in a Rough IPO

2 comments Written on March 27th, 2014 by
Categories: IPO

The IPO of King, the maker of the popular game “Candy Crush” has listed in the US, but fell about 15% from the IPO price of $22.5. In the US, shares get sold through merchant bankers who then sell them onward to customers. (Unlike India where anyone can bid and get allocation proportionately) The shares then list, and the initial buyers get to sell and realize profits.

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The King stock closed at $19, which was a 15% drop. The IPO was for 22.5 million shares, of which 15 million were issued by King, and the rest were sales by earlier investors. That means King raised about $337 million in the IPO, and the remaining (around $160 million) was received by its investors.

King made $568 million in profit in 2013, with $1.9Bn in revenues. The valuation of the company is around $6 billion, to make for one of the lowest P/Es I’ve seen. However the fear is that like Zynga, King might be a one-trick-pony, cashing in only on the ludicrously famous Candy Crush Saga, played by people worldwide.

The Facebook, Twitter and LinkedIn IPOs have been successful (though Facebook scared the daylights out of people by subsequently falling more than 50%). Zynga, another game maker, has had a rough ride, and even that was down 5% on opening day, and has since lost more than 60%.

It is way too early to call the end of tech IPOs, but gaming companies need to be able to prove they can sustain revenue over time through multiple titles before they get rich valuations from investors. I hope King can demonstrate that, and if it does, it will be a great investment.

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@capitalmind.in.

2 comments “Candy “Crushed” in a Rough IPO”

Hah, Facebook a successful IPO. If I had a penny for every self-proclaimed guru in India who thought that the IPO was mis-priced or a scam or Wall Street fooling investors, etc. Despite a 50% fall, the price came right back within a few months. The reality is that no one knows what the price of a stock should be. And, often, someone claiming to know when something is mis-priced has the same risk as someone claiming to justify the price. Yeah, there were technical and legal issues around Nasdaq and the IPO, but price is a different matter.

I was just reading what Warren Buffett said about tech investing. One thing that popped out to me was his idea that technology companies don’t have a strong lasting “moat” around themselves. Even mighty Microsoft could only maintain a lead for 10 years.

Candy Crush is really addictive but not that addictive. It will turn out to be a fad.