Candy Crush maker files for IPO despite declining usage

Is an IPO a good idea for a company that generates 78% of revenue from one game?

Candy Crush has become virtually synonymous with “addictive.” Did you know that the maker of Candy Crush has other games? Do you know who the maker of Candy Crush is?

Candy Crush is the viral hit spawn of Irish gaming company King Digital Entertainment, and the 12-year-old startup has decided that it’s time to grow up and file for an IPO. King Digital filed its F-1 Tuesday for an IPO that aims to generate $500 million.

A quick look at King Digital’s financials reveals a story of hyper-growth following the launch of Candy Crush Saga in 2012. 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 definitely appears to be 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 told, Candy Crush accounts for a full 78% of King Digital’s gross bookings—which naturally leads one to wonder what kind of plan the company has in place to sustain its business when Candy Crush falls off the map, as so many casual games eventually do.

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

“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.”

Are users already starting to lose interest? 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.