Candy Crush game maker's IPO to face investor scrutiny

Mon Mar 24, 2014 6:56pm EDT
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By Malathi Nayak

SAN FRANCISCO (Reuters) - King Digital Entertainment Plc's colorful "Candy Crush Saga" has gone viral on smartphones worldwide, but the company may struggle to replicate that enthusiasm with its upcoming $7.6 billion initial public offering.

The flotation this week will be closely watched in the fast-growing $17 billion mobile gaming industry, which is keen to emerge from the shadow of Zynga Inc, which has lost half its value since its 2011 IPO valued it at $8.9 billion.

That may be a struggle for London-based King. While the company has drawn plaudits for catching the mobile gaming wave with the most downloaded free app and becoming the top revenue producer of 2013 on Apple Inc's app store, it relies on its marquee game for three-quarters of its revenue.

"The red flag for this IPO is that King's revenues and fortunes are built on one game," Michael Yoshikami, chief executive of Destination Wealth Management, said. "I would be inclined not to invest in stock like this."

When upstarts like King and Zynga go public with valuations approaching those of more established players in the tech space, "it's all about when (the tech bubble) is going to pop," he said.

Even if King, which was founded in Sweden a decade ago, pulls off a strong debut, the real test will be the stock's staying power in coming weeks and months.

King's debut on the Big Board on Wednesday will be closely watched by rivals like Kabam and Kixeye -- known for strategy games like "Kingdoms of Camelot" and "War Commander" -- which are expected to seek market listings or new financing.

Investors warn of the dangers of an industry where games like "Draw Something", from Zynga's OMGPop studio that was shut down a year ago, can top the charts and then quickly fizzle.   Continued...

A woman poses for a photo illustration with an iPhone as she plays Candy Crush in New York February 18, 2014. REUTERS/Carlo Allegri