King readies for US IPO

Gaming company, King Digital Entertainment (King), has certainly grabbed plenty of headlines, having kicked off the process of filing for a US initial public offering (IPO) on Tuesday.

Market expectations are that this is the beginning of more technology-related IPOs to come this year – those expectations might well be right and that’s reason enough for excitement.

But is there enough at King for investors to get truly excited about?

Well, here are some of the details. King is the maker of the game Candy Crush Saga and the popularity of that game is undeniable.

According to the company’s IPO prospectus, Candy Crush Saga drew in a notable 93 million daily active users (DAUs), with 1,085 million games played in December last year.

For context, the company’s other games – yes, it does have others – for instance, Pet Rescue Saga, drew 15 million DAUs, with 129 million games played that month. Meanwhile Farm Heroes Saga had 8 million DAUs, with 59 million games played.

The company is indeed good at garnering cash from its offering…

For 2013, King took some $1.9bn in revenue (up from $164m in 2012) and boasted earnings – before interest, tax, depreciation and amortisation (EBITDA) – of $825m (up from $28m). Cash in hand is also healthy at around $400m (as at 31^st December 2013).

There is, however, a ‘but’

Gross bookings (the company defines this as the total amount users pay for virtual items and access to skill tournaments) saw a decline of around 2% for the quarter ended December 31 2013.

Yes, that was a small decline but is it a sign of things to come? It’s worth noting the fact that the decline was driven by the company’s hit – Candy Crush Saga, which accounts for the chunk of King’s total gross bookings (78% in the last quarter).

So, on balance, there‘s reason for investors to be interested in King in the near term and the company’s IPO seems set to be an exciting event.

But even if the aforementioned decline isn’t endemic, there’s inevitably a ‘next-best-thing’ set to hit the scene at some point, and then gamers’ interest in the company’s hit game will undoubtedly wane – we’ve seen it happen before elsewhere.

It goes without saying that such a scenario would not bode well for King, in the absence of other blockbusters from the company, that is.