King Digital Entertainment has priced its initial public offering at $22.50 a share, and that means it can begin trading on Wednesday morning as the stock market opens — giving us the first big gaming IPO since the rise and fall of social game publisher Zynga.
The much-awaited IPO of King could raise more than $499.5 million for the company and shareholders who are selling the stock at an estimated $7.6 billion valuation. Coming off of Facebook’s $2 billion acquisition of virtual-reality headset maker Oculus VR, the offering could put a lot of sizzle in the multibillion dollar game industry, which has had both ups and downs since Zynga went public in 2011.
As we noted earlier today, King made its gargantuan hit Candy Crush Saga with only three game developers. That hit generated a huge chunk of the company’s $1.89 billion in revenue in 2013, and now it has 665 employees trying to knock out one hit after another. The European mobile and social gamemaker hopes that investors will buy its story that it will be a hit factory, churning out smashes like Candy Crush for years to come.
King had previously said that its range of pricing would be $21 to $24 a share. In a statement, King said that J.P.Morgan Securities, Credit Suisse Securities, and Bank of America Merrill Lynch will act as lead joint book-running managers for the offering. Barclays Capital, Deutsche Bank Securities, and RBC Capital Markets are also assisting. All told, King will sell 15.3 million shares and shareholders will sell 6.6 million shares. The net proceeds for King will be $344 million, before fees. The company is expected to begin trading on the New York Stock Exchange under the symbol “KING” tomorrow.
King has some of the most impressive player numbers in the game industry, with 408 million monthly active users (MAUs) and 304 million monthly unique users. But bears such as Privco have noted that 78 percent of gross bookings in the fourth quarter came from a single game, Candy Crush Saga, and that title has begun to show signs of weakness.
King is clearly trying to move fast with its IPO to make sure it can raise money while Candy Crush Saga is hot. But it also points out in its filings that it is more like a hit factory than a one-hit wonder.
King is based in London, and it has its major studios in Stockholm. For filing purposes, however, the company has classified itself as an Irish company, based in Dublin. During its rise, King has seen many industry-changing events, such as the shift to social gaming, the rise of mobile, games as a service, the growth of the casual audience, and the free-to-play business model.
The company has been patient and methodical since its founding as Midasplayer in 2002. It first became profitable in 2005 on casual games that often involve puzzles and are easy to learn but hard to master. King published hundreds of casual games on its King.com website and attracted about 10 million players. Once Zynga started making a splash on Facebook in 2008 and got hundreds of millions of users, King turned its focus to social games to join in on the action. Zacconi watched Zynga’s growth closely and wanted to capture some of the magic it had in getting large numbers of users so quickly.
King’s earlier games were modest when it came to social features. The company was publishing about 15 games a year on its website, but it was slow to shift to Facebook at first. When it launched Bubble Witch Saga and later Candy Crush Saga on the social network, the games shot to the top and gave Zynga some serious competition for the first time. King captured a shift that was happening on Facebook and on mobile as players shifted from simulation games like FarmVille toward faster, arcade-like games with shorter playing cycles. Those games were easier to play while waiting in line at the coffee house, and Zacconi says his company is focused on creating “bite-size brilliance.”
Zacconi’s teams, led by seasoned leaders like Tommy Palm in Stockholm, created and debugged Facebook games one at a time. Once they were ready, they then launched them on mobile platforms such as iOS. They did it that way because it wasn’t as easy to quickly debug and update games on mobile. Once the teams had the virality and monetization figured out, they launched the titles. So King had a big funnel of a few hundred web games, a smaller number of Facebook games, and a handful of mobile titles.
In contrast to Zynga, which increased its payroll to 3,000 employees, King kept its teams small. Palm led a team of three that worked on a mobile version of Candy Crush Saga, which took advantage of the rapid adoption of smartphones and tablets by the hundreds of millions. The Candy Crush designers created hundreds of levels so players would never run out of something to play. They continuously updated the game. Other titles in the Saga series are similar, with hundreds of levels and plenty of social hooks to keep gamers playing with their friends. King’s games are cross-platform, enabling players to stop on one device and pick up the game on another.
In its filing, King said this process was “repeatable and scalable” and that it owns 180 game properties. It’s not clear how many of those game properties will lead to repeat hits on mobile.
For investors, that’s the crux of the question. Will it keep on producing the hits? By comparison, King has more mobile revenues than Electronic Arts, which has more than 900 mobile games. EA has standouts such as The Simpsons: Tapped Out, but it just hasn’t come up with a game with staying power to occupy the No. 1 or No. 2 position for a year like Candy Crush Saga has. Farm Heroes Saga, which was released on iOS and Android in January, grew from 8 million daily active users to 20 million from December 2013 to February 2014.
Phil Sanderson, a partner at venture capital firm IDG Ventures, said in an interview, “I also believe the King initial public offering is going to be a seminal transaction in the gaming space. It’ll lift that Zynga effect, which has kept a lot of investment down. We started to see a lot of VCs exit the market. When I talked to entrepreneurs, they complained that very few people were making game investments, and that’s still the case. But in venture, it’s often beneficial to be counter-cyclical, to be a contrarian. We know that markets wax and wane. I see a trend happening in gaming that’s starting to wax.”
Sanderson added,”Candy Crush has 93 million daily active users. It’s massive. But if you look at King, they have a platform to make mobile games. Pet Rescue Saga is a real game. There are 20 million daily active users. It’s casual, but it makes a lot of money. Even though King’s revenue declined last quarter, they still did $1.9 billion in revenue in the year. King will be a successful IPO, I think, and it will change people’s views of the market. People will realize that you can make a lot of money in gaming. At that point, valuations will be a lot higher.”