On its market debut, initial public offering (IPO) of Candy Crush mobile app maker, London-based King Digital Entertainment (NYSE:KING) sunk by as much as 15 percent on Wednesday, making it the latest disappointment in a widely watched and much hyped tech IPO.
The IPO debuted on the New York Stock Exchange (NYSE) under the symbol “KING.” Underwriters of the offering were Credit Suisse, BofA Merrill Lynch and JP Morgan.
Of the total 22.2 million shares offered, the firm sold 15.5 million shares. The rest came from stakeholders, including its biggest shareholder, the private equity firm Apax Partners.
During the day, when the firm’s IPO was priced at $22.50 per shares — the mid-point of the targeted price range — King Digital Entertainment managed to raise about $500 million. However, over the course of the day, Candy Crush maker King Digital Entertainment sank in its market debut when its shares declined by $3.41 to $19.09.
This signifies that even though the firm has had success with its mobile game Candy Crush, investors are holding reservations on the company’s future growth. The major concern of investors is that even though King Digital Entertainment is highly profitable at the moment – the firm earned $567.6 million in the year ended Dec. 31, 2013 – it cannot ride high on the success of Candy Crush forever.
This is not an unfounded concern as market history reflects that many similar online and mobile app game operators have tasted success with single titles, only to eventually disappear, and be replaced by another game title. Take Zynga Inc, the makers of Farmville as an example. When the company went public in 2011, it was valued at $7 billion but has shrunk to $4.2 billion since.
Investors do not want to take such hits, and so they remain cautious about investing in firms that ride high on single hit games. Even though King Digital Entertainment has about 180 other games under their banner, approximately three-quarters of its revenue come from Candy Crush.
Meanwhile, tech investors were hoping the market for young tech firms would be open again to IPOs and had their eyes on the King Digital Entertainment IPO to watch for the signs of success. However, the crashing of the IPO demonstrates that investors are still very selective to their options, consequently, impacting the confidence of tech investors.
Candy Crush is a game where users move at least three candies to line them up in the same color range. The game has a large supply of new levels and features and boasts to engage almost 100 million users daily. Users get daily bonuses and weekly new levels to keep them engaged with the game. Candy Crush is said to be addictive with gamers and has even spurred health concern reports.
Since its launch to mobile devices, the free game has been downloaded more than 500 million times. The company makes money on the game by using the freemium model and sells extra lives, candies and other game add-ons to the players.
Last month, the company said that they have an average of 144 million daily active users playing their games more than 1.4 billion times per day. However, this was not enough to keep Candy Crush maker King Digital Entertainment from sinking in its market debut
By Faryal Najeeb