Every day around 144 million people play online games made by
King Digital Entertainment, most of them navigating the colorful
"Candy Crush Saga."
King Digital (
) devotees play about 1.4 billion game episodes daily, mostly on
smartphones but also the Web and
), with "Candy Crush" accounting for about a billion of those
It's not a brainbuster game like chess. "Candy Crush Saga" is
a simple online puzzle game where players progress through a
dazzling display of candy. There are 500 levels, each offering a
different challenge that gets progressively harder.
Each game session is designed to last a few minutes. People
play them on buses, trains, planes, in airports, on coffee breaks
and study breaks, while they're watching TV or waiting to meet a
King Digital has been developing games since 2003, but it
wasn't until the introduction of "Candy Crush Saga" on mobile in
the first quarter of 2012 that it hit the jackpot. Like a hit
song, "Candy Crush Saga" rose to No. 1 on the charts and remained
king far longer than others. The company believes "Candy Crush
Saga" is one of the largest interactive entertainment franchises
of all time.
King Digital is shooting for another big score with an initial
public offering that is expected to launch Wednesday. The company
plans to raise $500 million by selling 22.2 million shares in a
21 to 24 range. That would give it a $7.6 billion market cap at
the high end.
King Digital describes itself as a leading interactive
entertainment company for the mobile world.
"Our mission is to provide highly engaging content to our
audience to match their mobile lifestyles: anywhere, anytime and
on any device," the company says in its IPO prospectus
The 144 million people who play daily are up from 128 million
in December. In Q4, King Digital had 408 million average monthly
users, up from 361 million in Q3.
In addition to "Candy Crush Saga," other games include "Pet
Rescue Saga," "Farm Heroes Saga," "Papa Pear Saga" and "Bubble
Witch Saga." They are referred to as casual games, which
typically include a puzzle element, are easy to learn and hard to
master. They can be played in a few minutes on a wide range of
devices. King Digital has a catalog of about 180 games, all of
them free to play.
King Digital operates six game studios -- in Stockholm and
Malmo, Sweden; Barcelona, Bucharest and London.
The company generates revenue primarily through the sale of
virtual items to users, which they buy to enhance and expand the
game experience. These items, which are purchased online, include
things like extra lives, boosters and additional game
Purchases are made on a micro-transaction model. A typical
virtual item is priced at about $1. Almost all of King Digital's
revenue in 2013 came from selling virtual items.
The vast majority of company revenue traces to the popular
games "Candy Crush Saga," "Pet Rescue Saga" and "Farm Heroes
Saga." Those three accounted for 95% of total gross bookings. But
King's top game, "Candy Crush Saga," accounted for 78% of total
gross bookings in the fourth quarter.
Sam Hamadeh, CEO of research firm PrivCo, sees that as a red
"This company is a one-trick pony and the pony is getting
tired," Hamadeh said. "It's no secret popular games are fads with
short life cycles."
By "tired," he was referring to the slowdown in "Candy Crush"
revenue in Q4 2013 compared with Q3. Total company revenue of
$601.7 million in Q4 was $19.5 million less than what was
reported in Q3, attributed to a slowdown in "Candy Crush"
"Candy Crush Saga" was the top downloaded game throughout 2013
but began slipping at the start of this year, according to data
from App Annie, a business intelligence firm focused on gaming
Hamadeh made a comparison toZynga (
), which came public at a time when its "FarmVille" franchise was
wildly popular. Zynga came public in December 2011 priced at 10.
The stock peaked near 16 three months later and then went into a
sharp dive, as its newer games failed to catch on.
"King Digital feels like Zynga all over again," Hamadeh
The digital gaming industry is highly competitive. It
includesElectronic Arts (
),Activision Blizzard (
), Zynga and numerous other companies. King Digital also competes
with game developers in foreign countries, such as Tencent
Holdings in Asia.
Other competitors include GungHo Online Entertainment, creator
of "Puzzles & Dragons," Finland-based Supercell and Rovio
Entertainment, creator of the "Angry Birds" franchise.
"King Digital is not the only one being extremely successful
and monetizing at a great rate," said Marcos Sanchez, vice
president of corporate communications at App Annie. "This is an
extremely competitive market where a breakout hit can come from
even the smallest company."
As King Digital said in its prospectus: "If we fail to offer
popular virtual items, make unpopular changes to existing virtual
items or offer games that do not attract purchases of virtual
items, or if our distribution partners make it more difficult or
expensive for players to purchase in-game virtual items, our
business, financial condition and results of operations will be
materially and adversely affected."
The huge success of "Candy Crush" in 2013 shows in the
financial results. Total company revenue of $1.88 billion in '13
compares with $164.4 million in '12. Profit of $567.6 million in
'13 compares with $7.8 million a year ago.
In the December quarter, revenue of $601.7 million was up 764%
from the same quarter a year ago. The company reported a profit
of $159.2 million, up from $6.1 million in the year-ago quarter.
In Q2 and Q3, revenue growth was more than 1,300%.
But a small portion of King Digital's player network accounts
for a large part of revenue. In December, about 4% of monthly
unique users, or 12 million players, purchased virtual items from
the company, accounting for most revenue.
King Digital expects to receive net proceeds of $326 million
from the offering, based upon an assumed IPO price of 22.50 per
share, the midpoint of its set price range. It intends to use net
proceeds for working capital and other general corporate
Zacconi, 46, a company founder, has been CEO since 2003. He
previously was vice president of European sales and marketing at
uDate.com, until it was acquired byIAC/InterActiveCorp (IACI) in
2002. Zacconi holds a B.A. in economics from LUISS University,
John Sebastian Knutsson
Chief creative officer
Knutsson, 45, has served as chief creative officer since 2004.
He was previously founder and chief creative officer of Fjord
Network, a developer of IP-telephone services. He holds a B.A in
cost analysis and finance from Stockholm School of Economics,
Chief financial officer
Cochran, 42, has served as CFO since October 2013. She
previously held several positions at Clearwire Corp., most
recently as CFO, until it was acquired bySprint Nextel (S) in
2013. Cochran holds a B.A. in economics and music from Stanford
King Digital Entertainment
Lead underwriters: JP Morgan, Credit Suisse, Bank of
Offering price: 21-24
Expected date: March 26