

King.com, Maker of Candy Crush, files for IPO - alexeichemenda
http://money.cnn.com/2014/02/18/technology/candy-crush-ipo/

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DigitalSea
Seems like a gutsy move considering King's only really breakout hit was Candy
Crush a game that will undoubtedly not be nearly as popular as it was in 2013,
in 12 months time.

This is a smart move though, cash in while they still can and then jump out of
the ship before it hits the financial iceberg and sinks. Unless they can
release another popular game, I can't see King being a worthwhile investment
for anyone and the only people coming out on top will be a select few.

I don't mean to sound cynical, but seems filing for IPO is the new trendy
thing to do nowadays. Companies with serious flaws, King's being they have one
single product they can't really iterate upon to keep relevant. For all we
know though, this makes King stronger and they'll release more popular games,
seems they have the chops to pull off another hit again. Halfbrick did it like
3 times over, it's not impossible.

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rhizome
I see it as a LinkedIn strategy. No real future, ephemeral momentum, and
likely a press-release driven stock price. Is there a merchandising angle to
their games?

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anxman
LinkedIn (LNKD) is one of the world's largest Internet companies by market
capitalization and is worth $23b. The company saw $1.5b top-line revenue in
2013 and over 50% revenue growth from 2012 and has been around for 8 years
with steady growth. These are totally different companies and require
completely different valuation models.

[https://www.google.com/finance?q=NYSE%3ALNKD](https://www.google.com/finance?q=NYSE%3ALNKD)

~~~
rhizome
Different valuation models, sure, but culturally possibly more similar. Maybe
I'm just hoping against hope, but LNKD seems to have a consistently precarious
position as this decade's Dice or Indeed.com or any other HR substitute
company, and much less as the social network that their valuation would appear
to be based upon.

But this is all just digression, so I'll basically concede the point.

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devindotcom
Investors will have to be very confident that the company is capable of
producing another huge smash hit. Generally the pattern has been cashing in on
the hype of the _previous_ smash hit, then falling into a sort of sophomore
slump, then death by inches.

King has certainly squandered a decent chunk of its gaming-community good will
by this whole candy/saga trademark business. That probably doesn't amount to a
lot of its users, however, and even fewer of its paying users.

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rcthompson
> King has certainly squandered a decent chunk of its gaming-community good
> will by this whole candy/saga trademark business.

Ironically, I was about to say something like "I guess this explains the
recent trademark business; they're trying to look like they're protecting
their IP so they look better to investors.". And here you are saying the
opposite. Is it possible that the same move could increase the perceived value
to investors while actually decreasing it by squandering user goodwill?

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devindotcom
I guess we'll know soon! Clearly it shows that they are willing to address
issues on the business side with (perhaps excessive) zeal, but it also shows
their audience that they are a heartless and clueless _gaming_ company. Of
course, it's not like other billion-dollar gaming companies have died on
account of their heartlessness and cluelessness.

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downandout
The shares are poised for a spectacular collapse as Candy Crush eventually
slows down. However, there is a real business behind King that has nothing to
do with flash-in-the-pan apps. King.com's primary business was, until
recently, a skill games tournament site. They are the largest such site in the
world and have been in business for over 10 years. They still own it but have
rebranded that part of the business as RoyalGames.com. Only about $20 million
of their revenue came from this business in 2013, but that is the only
predictable part of the company. The rest is sure to go down from where it is
today.

If you buy the shares, base the value on the Royal Games revenue - not on
mobile apps that will quickly lose steam. It's about 1% of revenue. Take their
IPO price, subtract 99%, and you have the appropriate valuation.

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tobico
"The company generates revenue by selling virtual items to a small fraction of
its players who wish to enhance their playing experience" should read "The
company generates revenue by psychologically manipulating players into
spending money in order to progress through the game"

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wahsd
It actually is rather solidly into gambling territory. It's basically a worse
version of pachinko or even slot machines. It's primary purpose is to draw the
user in to addiction in an unregulated system of player manipulation. There is
nothing preventing those pathetic savages at king.com from implementing
algorithms that manipulate the odds and outcomes to trigger users making in-
games purchases.

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vbnc
A friend who works at a similar casual gaming company has told me exactly
this. They a/b test giving the player a "run of luck", to see how that
improves conversion.

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xux
That sounds like every startup, ever.

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anxman
This doesn't have to end badly if investors price the shares appropriately
during the IPO process.

Not all revenue is alike and investors will apply a higher multiple when
revenue is sustainable. I see substantial risk in much of King's revenue
primarily because there isn't enough track record to know if it is repeatable
and if their sources of customer acquisition will continue in a profitable
way.

A good comp company would be Zynga (ZNGA) who rose to ~$1.3b in revenue in
2012 and fell 33% to the $870m range in 2013 and they now claim revenue has
stabilized. In Zynga's case, I'd say much of their revenue was also
indefensible yet they managed to hold on to much of it despite Facebook
cutting off Zynga's traffic. Zynga is currently valued at $4.2b or $2.9b in
enterprise value when you deduct out the asset value on the balance sheet.
That means Zynga trades at around 3.5x gross revenue which is similar to
Supercell's recent valuation in their sale to GungHo. Investors in Zynga made
the mistake of assuming that Zynga's revenue would continue its meteoric rise
and priced it ahead of its actual revenue.

Therefore, in King's case, a 3.5x revenue multiple on its 2013 trailing
revenue might not be appropriate given that they already saw revenue decline
in Q4 2013 sequentially. I'd therefore say that 33% (possibly as much as 50%)
is at risk in King's revenue so applying a very conservative 50% discount to
their top-line would put it in the $1b range, and then apply a 3.5x multiple
on top of that and King would be worth $3.5b in my book today. Given that I'm
an investor and would expect a return on my money, and also that a lot of
retail investors were burned with the Zynga IPO, investors might want a 10-20%
discount on this price to ensure that it outperforms the market.

Relevant sources:

[http://recode.net/2014/02/18/here-comes-the-candy-crush-
ipo-...](http://recode.net/2014/02/18/here-comes-the-candy-crush-ipo-
after-a-1-9-billion-year-king-gets-ready-to-go-public/)

[https://www.google.com/finance?q=NASDAQ%3AZNGA](https://www.google.com/finance?q=NASDAQ%3AZNGA)

[http://mitchlasky.biz/ea-and-the-future/](http://mitchlasky.biz/ea-and-the-
future/)

[http://mitchlasky.biz/should-venture-capital-fund-games-
comp...](http://mitchlasky.biz/should-venture-capital-fund-games-companies/)

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dep_b
So they don't expect any additional growth anymore and have decided this is
the point they need to cash in.

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astrodust
Sell this racehorse before they need to give it away to the glue factory.

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cvburgess
Waiting for this:
[https://news.ycombinator.com/item?id=3361212](https://news.ycombinator.com/item?id=3361212)

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linuxhansl
Can somebody outline how society would benefit if this company received
"public" money?

This is not meant as a flame, I am generally curious.

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thmcmahon
So that the company can invest in future products and sell them to customers.
If successful the investors make money, the company pays developers and
customers enjoy whatever games the company makes.

The money is not 'public' in the sense of belonging to the government, but
public in the sense that anyone can invest through the share market.

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vayarajesh
I think they would have a very big plan ahead and they planned it for the IPO
(or its a new trendy way for fraud) :)

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vayarajesh
One of the reasons the game is so successful is because of manipulating and
simulating human behavior

[http://ireport.cnn.com/docs/DOC-1050994](http://ireport.cnn.com/docs/DOC-1050994)

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mmanfrin
Zynga 2.0.

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chc
Not even. Zynga had more than one hit to its name before IPO.

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beedogs
The end result of this will be a fantastic shareholder lawsuit.

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spacehome
Over what?

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jordsmi
I don't see this going good

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almosnow
Does anyone else thinks that IPOs these days are just a sophisticated form of
fraud?

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ekianjo
No. Why would you say that? Nobody is forcing anyone to buy any share from
this IPO.

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judk
Fraud has nothing to do with force. Fraud is based in deceit.

