King Digital IPO flops, closes down 15.56% at $19

The Candy Crush maker didn't have the hit IPO some were hoping for

King Digital closed its first day of trading at $19, down 15.56% from its original price of $22.50. That’s after shares opened a full 9% below the $22.50 price—at $20.50. So the company kind of tripped out of the gate and spent the rest of the race fumbling over its own feet. At its original $22.50 price, the company raised $326 million at a $7 billion valuation. Now its valuation stands at some $6 billion, with a market cap of $2.28 billion.

It’s not surprising, considering King Digital Entertainment is all but completely riding Candy Crush for its revenues. Still, the Irish company was expected to revive investor interest in the mobile gaming sector with the largest IPO since Zynga (which, as you may have noticed, hasn’t done so hot).

 The King Digital IPO seemed far-fetched from the beginning. At 12 years old, the company finally hit pay-dirt with Candy Crush Saga and decided to make things official with a public offering. But the company’s filing revealed that Candy Crush accounts for nearly 80% of its revenue.

In 2013, the company took home a profit of $568 million on $1.88 billion in revenue. That’s up from a profit of $7.8 million on revenue of $164 million in 2012. I repeat: King Digital went from $164 million to $1.88 billion in one year. In 2011, it posted a loss of $1.3 million on $64 million in revenue.

That’s crazy explosive growth—and Candy Crush is definitely the sole driver of that growth. Today, Candy Crush Saga has 93 million daily active users, which is triple that of all of King Digital’s other games combined. Its next most popular game, Pet Rescue Saga, has 15 million daily active users, and just 129 million daily game plays, compared to Candy Crush’s 1.085 billion daily game plays. Other games include Farm Heroes Saga, Papa Pear Saga, and Bubble Witch Saga.

King Digital generates revenue the way so many other casual gaming companies do: by charging for in-game virtual items. Currently, only 4% of King Digital’s users—or 12 million altogether—regularly pay for items.
All of that has led investors to question how the company plans to maintain growth after Candy Crush falls out of fashion, as so many casual mobile games do.

The company has said it plans to maintain growth by “strengthening our pipeline with new game IP.” In other words: try really hard to come up with more viral games.

And there’s evidence that users are already growing tired of Candy Crush. In December 2013, King Digital saw its first quarterly decline in revenue and profit since March 2012. The company generated $159 million in profit on $602 million in revenue in the December 2013 quarter, which is down from $230 million in profit on $621 million in revenue in September 2013. And the company admits in its filing that the decline in revenue was due exclusively to a decline in Candy Crush gross bookings.

King Digital Entertainment has raised $9 million to date from Apax Partners and Index Ventures.