|It will be a bad day for ZNGA. The KING IPO opened down:|
‘Candy Crush’ Maker Trades Lower in Debut
King Digital Opens at $20.50, Below the Offer Price of $22.50
King Digital opened lower, on the heels of an IPO that valued the "Candy Crush Saga" game maker at more than $7 billion.
By Matt Jarzemsky
Wall Street Journal
King Digital Entertainment PLC opened surprisingly lower, on the heels of an initial public offering that valued the “Candy Crush Saga” game maker at more than $7 billion.
The shares opened at $20.50 Wednesday, down from the $22.50 price offered by investors in King’s IPO late Tuesday. The deal raised about $500 million, pricing at the midpoint of the range the company had expected.
King’s shares are listed on the New York Stock Exchange under the symbol “KING.”
At $22.50, the deal raised $350 million for King and another $150 million for early investors such as private-equity firm Apax Partners LLP. The company and its shareholders sold 22.2 million shares. They have granted underwriters the option to sell an additional 3.3 million shares.
Though “Candy Crush Saga” has become a household name—attracting 97 million daily active users last month—King’s IPO didn’t have some of the telltale signs of investor interest that surrounded debuts by other consumer-aimed Internet companies like Facebook Inc. and Twitter Inc. Those companies both saw sufficient investor demand for their offerings to sell shares for higher prices than they’d originally planned.
King turned a $567.6 million profit last year as its revenue rose 11-fold to nearly $1.9 billion, underlining the success of “Candy Crush Saga,” last year’s top-grossing app franchise in the U.S. on devices using Apple Inc.’s iOS operating system, according to data provider App Annie. But some analysts say that game’s peak moneymaking days are behind it, raising the question of whether King can repeat its past success.
Meanwhile, “Farmville” maker Zynga Inc.’s stock-price slide in the year following its IPO set a dubious precedent for debuts by online and mobile-phone videogame companies, in the eyes of some investors. As of the latest close, Zynga’s shares were down 52% from the company’s December 2011 IPO price. The shares have recovered somewhat of late, rising 27% in 2014 through Monday, amid recent purchases by hedge funds such as Millennium Management LLC and Tiger Global Management LLC, according to FactSet.
“The standard term that people use to describe this kind of [business] is hit-driven,” said Rett Wallace, chief executive of private-company research and data provider Triton Research LLC.
“For all of the claims that Zynga made—and King makes the claim too—that they have a scalable, repeatable process, it just turns out that the alchemy of figuring out a thing that billions of people are going to use all the time is really hard,” Mr. Wallace said.
However, King is seeking a relatively modest valuation versus some of its peers, some analysts say. Sterne Agee & Leach Inc. analyst Arvind Bhatia estimates the company’s revenue will grow to $2.49 billion this year. At the IPO price, it would be trading at 3 times his sales estimate. Zynga trades at 5.5 times analysts’ average 2014 sales forecast.
On a price-to-earnings basis, King would also be valued at a discount to established videogame companies like Activision Blizzard Inc. and Electronic Arts Inc., according to Mr. Bhatia.
“They’re being honest with investors regarding their slowing growth rate, which I think is helpful,” said Rob Romero, portfolio manager at Connective Capital Management LLC, a Palo Alto hedge-fund firm with $120 million under management. He said in an interview before the pricing that he planned to try to buy shares in the deal.
“They need to be able to generate new games and successfully develop and market their new-game pipeline to replace the revenue that will inevitably be lost when Candy Crush begins to decline,” Mr. Romero said. “And they have such a pipeline.”
A King spokesman declined to comment on analyst and investor thoughts on its business, saying it was in a quiet period around its IPO.
King’s other games include “Bubble Witch Saga” and “Pet Rescue Saga.” Like Candy Crush, these have also cracked the top-five lists of daily active users on “primary platforms” such as Apple’s iOS, the company says in its IPO prospectus.
“Farm Heroes,” for example, which King launched in the Apple app store in January, has been among the top 10 highest grossing apps for the iPhone among U.S. users every day since early February, according to App Annie. But “Papa Pear,” which launched as a mobile app last November, has fallen off from the top 30 highest-grossing iPhone apps in January to the top 40 in March, App Annie data showed.
And in the last three months of 2013, “Candy Crush” accounted for 78% of King’s gross bookings, a financial metric similar to revenue, according to its prospectus.
J.P. Morgan Chase & Co. is leading the deal with Credit Suisse Group AG and Bank of AmericaMerrill Lynch.
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