I must have deleted 50 invitations from my
"friends" to play the online game Candy Crush. But not everyone
finds them annoying. In fact, 93 million people actively play
With a gaming platform on
and an app for both
Android devices, Candy Crush is one of the most popular
King Digital Entertainment is the company behind Candy Crush.
And it just announced plans to raise $500 million in an IPO. The
deal could value the business at $5.5 billion. That's incredible
when you consider that the company has raised a total of just $9
million since it's founding in 2002.
King Digital Entertainment bears a lot of similarities to
. For investors considering this red-hot IPO, that isn't a good
Just take a look at Zynga's performance since its December
78% of King Digital Entertainment's revenue comes from Candy
Crush. This incredible dependence on a single game makes the
company extremely risky for investors.
That's because online games are like fads. A select few mobile
games become "hits." But the top games don't remain on top for
long, and they're soon replaced by new alternatives. The fact is,
users get bored and gaming companies fail if they are too
dependent on individual games.
It is an unsustainable business model, especially in the case
of King Digital Entertainment, which is totally dependent on its
Candy Crush and Pet Rescue Saga games.
Some growth investors will be attracted to the company's rapid
growth. King Digital grew its profits an impressive 7,000% last
year thanks to Candy Crush. Total revenues for the year were
However cracks are already beginning to emerge.
The company reported a sequential decline in quarterly revenue
in the last quarter. The CEO explained this was a result of
"the seasoning of our older games in certain markets among our
more occasional customers."
That is simply a complicated way of saying of "people got
bored" that I have ever read. Users are already losing interest,
and that's very bad news for King Digital Entertainment.
The fact is, King Digital Entertainment is built on quickly
moving mobile fads and their business model is designed to make
the most of a game's short lifespan. But with 78% of revenue
coming from one game, what happens when users get bored and don't
move on to another game from the same company?
Not only does the end seem near, it seems that company
executives know it. Since October, the company has paid out $504
to its shareholders. That's about the same amount that King
Digital Entertainment now hopes to raise in the Candy Crush
With the founders and existing investors cashing out, it's a
good sign that this deal will be a flop. King Digital
Entertainment is Zynga 2.0, and even growth investors should
steer clear of the Candy Crush IPO.
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