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   Technology StocksZynga, Inc.


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From: Glenn Petersen3/12/2014 7:46:28 PM
   of 364
 
What’s Candy Crush Really Worth?

Posted by James Surowiecki
The New Yorker
March 12, 2014



On Wednesday, King Digital Entertainment, the mobile-gaming company that makes Candy Crush Saga (which I wrote about in the magazine this week), set the terms for its coming I.P.O. Its projected valuation is as outrageous as expected. King (and its existing shareholders) plan to sell more than twenty-two million shares at a price of twenty-one to twenty-four dollars apiece, which would give the company a projected market cap of around seven billion dollars. That’s two billion more than Zynga’s market cap, and, even more strikingly, just a few billion dollars less than the market caps of the gaming giants Electronic Arts and Activision Blizzard.

The enormous profits that King is raking in from Candy Crush makes the company look reasonably priced on a price-to-earnings (P/E) basis, with a trailing P/E ratio of just 13.3. At Yahoo Finance, Aaron Pressman argues that when you compare King’s valuation to those of other tech high-flyers (which often have P/Es above a hundred), there’s a case to be made that it’s undervalued. The problem, of course, is that this assumes that King’s current profits are sustainable, not just for a couple of years but for the foreseeable future. Price-to-earnings ratios are crude tools at best, and they’re useful only if the “earnings” part can be counted on to be stable or growing. In King’s case, as I argued in my column, there’s just no reason to assume that Candy Crush—which brings in eighty per cent of King’s revenue—is going to keep generating enormous piles of cash for years to come. Nor can it be expected that King will come up with sequels that replicate Candy Crush’s success.

When you buy shares in a public company, you’re buying a share of future profits, and the future of any company that’s reliant on a single faddish product for so much of its revenue is inherently uncertain—too uncertain for investors to confidently accept a seven-billion-dollar valuation. I have no doubt that investors will snap this offering up: the market is willing to value Zynga, which has lost six hundred million dollars over the past three years, at five billion dollars. King looks like a bargain by comparison. But this is a pure gamble.

Pressman alludes to the fact that there are successful video-game franchises. But, almost without exception, those franchises are titles in which companies invest huge sums of money, and many of them (like sports franchises) have a natural upgrade cycle built in: people buy the new Madden like clockwork when football season starts again. King has yet to demonstrate that it’ll be able to do anything similar with Candy Crush.

King’s offering does make clear just why the company is going public—to allow its current shareholders to make a whole lot of money. The company itself is planning to raise about three hundred and twenty-five million dollars. Shareholders are going to sell shares worth another hundred and fifty million, which represents a very nice payday, particularly since many of those shares will be sold by individuals. (The private-equity firm Apex Partners, which owns nearly half the company, is going to dilute its stake by only four per cent.) Going public, as I argued in my piece, still seems like a mistake for a company that has more than enough money in the bank to stay afloat for years to come (and is going to be generating hundreds of millions of dollars annually for the next couple of years), and that operates a business ill-suited to the demands of shareholders, who want consistent and steadily growing profits. But there are few better ways to make a lot of people really rich than a high-priced I.P.O., and, looking at these numbers, it’s not hard to understand why King’s current shareholders are happy to take the money. Whether future shareholders will ever be quite as pleased, though, is another question.

newyorker.com

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From: Glenn Petersen3/20/2014 3:49:28 PM
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At GDC Shindig, Don Mattrick Says Zynga Turnaround Is Halfway There

By Eric Johnson
Re/code
March 20, 2014, 5:05 AM PDT

Two years ago, Zynga’s stock began a now-notorious tumble, losing 86 percent of its value between February and November of 2012. After a leadership shakeup last year and a major acquisition last month, the company is showing some signs of vitality again — part of a turnaround that CEO Don Mattrick says is about halfway to where he wants it to be.

Mattrick was speaking at a Game Developers Conference party hosted by investment bank Covert & Co., his first public appearance since coming to Zynga from Microsoft last July. The company is in a quiet period until its Q1 2014 earnings come out next month, so Mattrick was careful to watch his words, but nonetheless dropped some hints about what’s ahead.

“To me, it feels like 1991 when EA was going public,” Mattrick said of longtime employer Electronic Arts, which acquired his first company Distinctive Software not long before its IPO. “We [EA] grew from 1 to 25 percent market share” by making “purposeful bets” like major sports licensing deals, he added.

For present-day Zynga, however, “purposeful bets” will mean not licensing but, instead, more original IP, in tune with its recent $527 million acquisition of Clumsy Ninja maker NaturalMotion. Indeed, NaturalMotion CEO Torsten Reil and FarmVille VP Jonathan Knight joined Mattrick onstage at the GDC party in taking questions from Benchmark general partner Mitch Lasky.

A few weeks ago, Knight and his counterparts in leading Words With Friends and Zynga Poker unveiled their plans for refreshing some of Zynga’s best-known games on mobile. For Mattrick’s turnaround to work, that platform transition has been key, but he pointedly said his old stomping ground of console gaming was still doing fine.

“People always try to think of the business in discrete terms and pure cannibalization occurring,” Mattrick said. “I think we’re going to see, in the console space, growth occurring. … I’m personally bullish on growth in all segments of the business.”

It’s been easy to temporarily forget about both console and mobile, if only for a second, at this year’s GDC. New virtual reality tech from Sony and Oculus VR has made the experimental technology a go-to icebreaker in seemingly every meeting room and party.

So, Lasky asked, will Zynga release a virtual reality FarmVille game?

“Not in Q2,” Mattrick joked.

recode.net

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From: Glenn Petersen3/25/2014 11:33:48 AM
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Candy Crush gets priced tonight:

Candy Crush comes to Wall Street, should investors get in the game?

By Jeff Macke
March 25, 2014
Breakout

King Digital, the maker of the at one point wildly popular Candy Crush Saga, is set to go public tomorrow - pricing tonight at around $8 billion. The company gets about 75% of its revenue off of the Candy Crush franchise, which was the number one game in the land up through January.

In its prospectus King Digital says that one of the main threats is its own explosive growth. It has hired 512 people over the last two years to try to replicate the success of Candy Crush Saga and come up with another winner; therein lies the rub.

The number one game in the land right now is 2048, a game that I taught the kids how to play and told not to speak to me unless they completed it. It’s that addictive, my friends. It’s the only game you’ll see people playing at work and on the bus while they wait for the NCAA games.

My point is this, the 19 year-old Italian kid who used his OCD to design 2048 and gave it away for free on the internet is really King Digital’s competition. There’s a reason Rovio, the maker of Angry Birds hasn’t gone public yet and that’s because they’re printing cash like a busted ATM or the weirdo that invented Bitcoin.

If a company is really good, really operating, really taking advantage of the $17 billion industry that is apps, they’re not going to go public. When companies like King Digital start going public it’s time to grab your wallet and form a betting pool as to who is going to finish 2048 first (the answer is me).

finance.yahoo.com

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To: Glenn Petersen who wrote (304)3/26/2014 9:06:10 AM
From: Suma
   of 364
 
Are you hoping ZNGA will have the same luck ?

The chances are ?

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To: Suma who wrote (305)3/26/2014 9:32:34 AM
From: Glenn Petersen
   of 364
 
ZNGA will probably get a sympathetic bounce if the KING IPO is viewed as successful. Conversely, it will hurt ZNGA if the IPO is viewed as a failure. While KING is immensely profitable, most of the commentary has focused on the fact that interest in specific online games is transitory, as ZNGA learned a couple of years ago. The days when families would buy a Monopoly game and play with it until the board fell apart are long gone.

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To: Glenn Petersen who wrote (306)3/26/2014 9:56:45 AM
From: Suma
   of 364
 
Well today is not looking good at all. We have fallen from five bucks PLUS to a range that is not forgivable but what is a good guy to do ?

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To: Suma who wrote (307)3/26/2014 10:05:25 AM
From: Glenn Petersen
   of 364
 
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.

Write to Matt Jarzemsky at [url=]matthew.jarzemsky@wsj.com[/url]

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To: Glenn Petersen who wrote (308)3/26/2014 11:17:08 AM
From: The Ox
   of 364
 
So the company came out at a fairly reasonable price and didn't need people to hype the stock, therefore it's down. I happen to catch CNBC this morning and Cramer was absolutely trashing the IPO, fwiw. Makes you wonder if he didn't get the allocation he wanted (g).

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To: The Ox who wrote (309)3/26/2014 11:45:30 AM
From: Glenn Petersen
   of 364
 
Are you suggesting that analysts and commenters can be bought? How shocking. :)

And here I thought that pay-for-play was limited to Illinois politics.

The KING offering was getting trashed from the moment they filed their registration statement. It is hard to fault management for monetizing value for their shareholders, even if it may be transitory, and raising a pile of cash. I honestly don't know how to value the company. It didn't help that some of its existing shareholders sold stock in the offering.

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To: Glenn Petersen who wrote (310)3/26/2014 11:53:44 AM
From: The Ox
   of 364
 
ot
pay-for-play was limited to Illinois politics.


No way! We may corner the markets in this area and often those responsible are idiots who get caught red handed but I suspect that "pay-for-play" goes back almost as far as mankind itself.

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