As you may have heard this week, King Digital Entertainment, the designer of the ultra-popular mobile game ‘Candy Crush’, officially began as a publicly traded company. The company, listed as KING on the New York Stock Exchange, issued 22.2 million shares at a price of $22.50 on Tuesday, giving the IPO an initial value of 499.50 million dollars. After its first day of trading, the company’s share was down 15.6%, far from the 72.7% Twitter’s gain as you can see it on the graph below. As some of the sell-side analysts would say, not such a royal IPO.
(Source: SIX Financial Information, from WSJ)
Is the bearish trend going to continue in the coming weeks?
To begin with, unlike some of its internet-based friends valued over 1 billion US Dollars without making a single dime (Twitter, Snapchat, Pinterest…), KING has generated an annual revenue of $1.89bn (profit of $568mio) despite offering games to players for free (more than 1000% growth compared to the ‘shy’ $164mio revenue in 2012). For instance, Twitter, which was launched in 2006, managed to raise $1.82bn in its IPO last year (November 7) by selling 70 million shares at $26 a share. They are now trading at 47.3 after reaching a high of 73.3 on December 26th 2013, which still represents a 81.9% increase. However, if we have a look at the Income Statement, we can see that Twitter hasn’t recorded a profit for at least the past four years with net losses that came in at $67m in 2010, $164m in 2011, $79.4m in 2012 (its first public financial statement) and $645.3m in 2013 .
Secondly, our thoughts about the company were: ‘is it going to be all about Candy Crush or there are other projects coming?’ The most popular game (Candy Crush Saga), which was created in March 2011 and has managed to catch people’s attention to become an addictive time-waster especially in a tube journey, generated 78% of KING company’s revenue for the last three months of 2013 and approximately has a 100-million user each day. Like most of the game companies, the profits come from a minority of users who buy extra-lives, ‘super-power’ and other add-ons.
But according to his last interview this week, chief executive Riccardo Zacconi who has led King since its start in 2003 seemed really confident about the company’s future. He emphasized that the company’s strategy is to continue to build a portfolio of games and a network of players, and not just ‘find another megahit like Candy Crush’.
We keep a bullish view in the medium term as we believe that KING inherited from the market’s bearish sentiment on the Tech stocks. The heavy-tech NASDAQ composite index was down 2.8% from last Friday’s close to 4,155.759, with Facebook, Twitter and Zynga all down by 10.8%, 7.1% and 10.7%.
Quick chart review: As you can see it in the graph below, the stock continued to plummet after its 15.6% daily loss on Tuesday and ended the week at 18.08 (which represents a 19.7% decrease). It found support below the 18.00 level after it reached a low of 17.62 on Friday.