Zynga hits 19-month high on King IPO announcement

Zynga stock sees highest close since July 2012; King already looking to avoid Zynga's mistakes

Financial trends and news by Steven Loeb
February 18, 2014
Short URL: http://vator.tv/n/351f

The big news today is that King, the game-developer behind the Candy Crush phenomenon, is planning to go public.

So far investors seem to be pretty positive about the news and, interestingly, that seems to have translated into a win for one unlikely company, the one that many will look as a cautionary tale for what King should not do: Zynga.

Following the news, Zynga's stock ended regular trading on Tuesday up 28 cents, or 5.72%, to $5.15 a share.

The last time that Zynga's stock went higher during trading was on July 25th, 2012, when it reached $5.19 a share. The stock last ended regular trading above that price on July 9th, 2012, when it ended the day at $5.24 a share. 

That being said, it still has a long way to go before it can reach its $10 IPO price, but this is at least an encouraging sign that investors might be willing to take another look at online-gaming companies, which is seems to have shyed away from following Zynga's pretty epic collapse.

King vs. Zynga

King filed its F-1 Tuesday for an IPO that aims to generate $500 million, and many investors will be looking to make sure that it avoids some of the same mistakes that Zynga made.

Those mistakes caused the company's stock to lose 70% of its value after its IPO, lose a lot of its top talent, and be forced to lay off numerous employees and close numerous studios

King will definitely have some issues it needs to address going forward. There are already some rumblings about King's declining usage, and the fact that the company is currently riding on its one big hit game. In December 2013, King Digital saw its first quarterly decline in revenue and profit since March 2012.

But the company has already avoided one big error that Zynga made: becoming too reliant on Facebook.

The relationship between Zynga and Facebook was mutually beneficial, at least at first. By February 2012, 19% of Facebook’s revenue came from Zynga, with 12% coming directly from Zynga and 7% coming from the revenue generated by ads on the games.

The numbers started to slip, though, as Zynga’s games became less popular, and the company became more dependant on Facebook for revenue, even as the amount of revenue Facebook was getting from Zynga was declining.

Finally, Zynga and Facebook filed documents with the SEC to loosen the relationship between the two companies. And, without Facebook, Zynga has struggled to distinguish itself from the pack.

King, which also got its numbers up through Facebook, has wisely branched out, particularly on mobile., where its revenue exploded in the last year.

The company's mobile revenue increased by $1.309 billion, going to $1.324 billion in 2013, up from $16 million in 2012. In comparison, King only made $540 million in Web revenue, less than half of what it made from mobile.

Still, the threat of what happens when Candy Crush inevitably declines looms large over King right now.

“In future periods, we expect Candy Crush Saga to represent a smaller percentage of our total mobile channel gross bookings as we diversify our mobile game portfolio,” the company said in its F-1.

“If the gross bookings of our top games, including Candy Crush Saga are lower than anticipated and we are unable to broaden our portfolio of games or increase gross bookings from those games, we will not be able to maintain or grow our revenue and our financial results could be adversely affected.”

Zynga declined to comment on this story.

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