The maker of the very popular Candy Crush Saga game, King Digital Entertainment PLC, is planning an IPO (initial public offering) of $500 million. While the game is undoubtedly very profitable, there are many questions about the company’s ability to sustain profits. Overall, Candy Crush generates 78% of the company’s earnings. A couple other games, Pet Rescue Saga and Farm Heroes Saga add another 17%. So 95% of revenue from 3 games isn’t the most stable base to offer $500 million in stock.
The game works on the freemium model, where the game itself is free to download, but you make in-app purchases to advance yourself quicker. This did earn King a staggering profit of $567 million in 2013. Other mind boggling numbers? 93 million people played Candy Crush more than one billion times in December. However, it is important to note that in 2012, the company only had a profit of $7.8 million. The question of future earnings potential would be a big stumbling block to investors, in my opinion. On the other hand, $567 million in profit gives you a big bankroll to develop more games.
The luck of having a mobile game become successful can be hard to replicate. Rovio has done pretty well with it’s Angry Birds variants, but others, like Zynga, haven’t been able to reproduce the success of it’s big hit, Farmville. Then you get a game like Flappy Birds, made in a couple days by one programmer, and it becomes a huge hit. Having the ability to consistently put out games which the public will continue to download in big numbers is a very hit or miss proposition. Whether Candy Crush makes King worth $500 million is hard to say, but investors will vote with their wallets at the IPO.