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By Malathi Nayak
March 26 Shares in King Digital Entertainment
Plc fell as much as 16 percent in their Wednesday
debut, underscoring investor concern about the company's
reliance on "Candy Crush Saga" and dampening hopes that its
coming-out party could revive investor interest in the mobile
Mobile game industry executives had looked to London-based
King's IPO, the largest by a gaming company since Zynga Inc
went public in 2011, to help sweep aside skepticism
over a notoriously fickle, volatile market.
But King's shares fell to a low of $18.90 in afternoon trade
from their IPO price of $22.50, which valued the company at
about $6 billion.
Since Twitter's market debut in November, King's
IPO was the largest U.S. tech IPO and the second-worst
performing after textbook rental and academic service company
Chegg Inc, which plummeted 23 percent, according to
Thomson Reuters data.
The company offers over 180 games but its two-year-old
"Candy Crush Saga" game, in which users move candies to line up
at least three of the same color, accounted for over
three-quarters of King's revenue for the last three months of
"Once you have a hit, it's hard to make a string of hits.
How many bands were the Beatles?" Roger Kay, analyst at research
firm Endpoint Technologies Associates said. "Also, there've been
a lot of high priced IPOs and mergers and acquisitions (of late)
and when valuations get frothy, investors get disappointed when
returns don't measure up to expectations."
Candy Crush, a free game, is now a household name and has
been downloaded more than 500 million times since its launch on
mobile devices. Using the "freemium" model, King makes money by
selling players extra lives and other add-ons.
King's dismal debut dragged down other gaming stocks on
Wednesday. Zynga shares fell over 4 percent, while
smaller player Glu Mobile slipped 4.5 percent.
When Zynga debuted in 2011 with about the same valuation as
King, its stock ended down 5 percent on opening day.
"FarmVille" maker Zynga's market value has since shrunk to
just over $4 billion, falling victim to concerns about the
danger of investing in companies that rely heavily on a hit
"This was mispriced," Sterne Agee analyst Arvind Bhatia said
of the King debut. "There are a lot of IPOs in the pipeline so
investors are not starving ... and are being picky. Today's
action also says investors are not going to ignore
King's shares closed down about 16 percent at $19.00 on
Wednesday. JP Morgan, Credit Suisse and BofA Merrill Lynch were
the lead underwriters for the offering.
There are some signs new titles from King's portfolio may be
gaining traction. Analysts have pointed out that "Farm Heroes
Saga" has seen momentum since its January mobile launch.
The title has since landed on the list of top 10
highest-grossing apps on Apple's iOS platform, but whether the
game will prove to be a money-making title in coming months
remains to be seen.
Despite its first-day fizzle, the company's real test will
be to convince investors that it can build a sustainable
"To us it's not about today but (a run) over the course of
years and executing our plans," Hope Cochran, King's chief
financial officer, said in an interview. "Having a stable group
of global franchises is really what we're focused on."
King sold 15.5 million shares of the 22.2 million offered,
with the rest coming from stakeholders including private equity
firm Apax Partners, which remains the biggest shareholder. King
raised about $500 million in its IPO.
In February, King said an average 144 million daily active
users played its games more than 1.4 billion times per day.
Unlike companies like Twitter that went public last year
with no profits on their balance sheet, King has been profitable
"Candy Crush," which was first launched on Facebook in April
2012, was released on Apple devices in November that year and on
Android devices a month later.
The spectacular popularity of "Candy Crush" helped King
generate revenue of $602 million in the fourth quarter of 2013,
up from $22 million in the first quarter of 2012.
The stock's less-than-impressive debut will be noted by
youthful rivals such as San Francisco-based Kabam and Kixeye,
known for strategy games like "Kingdoms of Camelot" and "War
Commander", which are looking to make market listings or secure
King has no debt and generated positive cash flow from
operations for each of the last nine years. It posted profit
before tax of $714.3 million in 2013.
Apax will retain a 44.2 percent stake in the company, if
underwriters fully exercise their option to buy shares.
Chief executive Riccardo Zacconi, who has led King since
co-founding the company in Sweden in 2003, will hold a 9.5
(Reporting by Neha Dimri and Anil D'Silva in Bangalore and
Malathi Nayak in San Francisco; Editing by Savio D'Souza, Ted
Kerr and Meredith Mazzilli)