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Investors still not sweet on Candy Crush creator King Digital Entertainment

As explored in the MarketLine case study King Digital Entertainment plc: Sweet success of Candy Crush but doubts remain King Digital Entertainment plc’s (King) initial public offering (IPO) was preceded by a great deal of fanfare and publicity but failed to reach its target price as investors feared an over-reliance on smash-hit mobile casual game Candy Crush Saga (Candy Crush).

Originally incorporated as Limited in 2002, King has experienced a period of rapid growth, both in terms of revenues and profits, in recent years. 2013 saw revenues soar by 1,046.1% to hit $1,884m and net income by 7,135.1% to reach $568m. Impressive numbers, even by modern tech company standards, and it is certainly not a coincidence that these numbers were achieved during Candy Crush’s first full year of availability on the Facebook and App store platforms. The match three puzzle game boasts  93 million daily active users (DAU) – roughly the equivalent of every person in Vietnam playing the game on a daily basis – far outstripping the company’s other games. According to Appdata numbers from June 2014, Candy Crush is the number two top grossing app on iOS, the number two top grossing app on Google Play, the third most popular game on Google Play, as well as the number one most downloaded casual game. In 2013, the game was the most downloaded free app on for iOS and Android ahead of even Facebook, Google Maps, Instagram, and YouTube.

While this has helped catapult King, concerns over its reliance on Candy Crush undoubtedly dampened enthusiasm for its IPO in March 2014.

The company issued 22.2 million shares priced with a range of $21-24. A price of $22.50 was eventually settled on, valuing the company somewhere between $6bn and $7bn. On the opening day of trading, it quickly became apparent that investors had concerns about the company, its long-term viability and its reliance on a small number of highly popular titles.

The shares failed to achieve their target price, opening instead at $20.50 before closing their first day at $19. The share price has continued to steadily decline and closed on June 19, 2014 at $17.66. Skeptics point to rival developers, such as Rovio, which has struggled to replicate the success of Angry Birds, and particularly Zynga as cautionary tales. Comparisons with Zynga continue to plague King, particularly the parallels drawn between its smash hit FarmVille and Candy Crush, as well as the two companies’ disappointing IPO performance. Zynga’s disastrous acquisition of Draw Something developer OMGPOP is a valid illustration of how faddish the casual gaming industry can be with that game having lost five million players in less than two months and King must take action to ensure it is protected should a similar fate befall Candy Crush.

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