Candy Crush maker sets final share price

http://www.theguardian.com/technology/2014/mar/26/candy-crush-king-opening-share-price

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King, the British games studio behind the blockbuster smartphone game Candy Crush, has set a final price of $22.50 (£13.61) on its shares, which begin trading in New York on Wednesday, valuing the company at just over $7bn.

The price is exactly in the middle of the $21 to $24 range suggested by the company earlier this month, reflecting concerns among some investors that its success with Candy Crush may be hard to repeat.

Backers hope King will follow the trajectory set by Twitter, which floated at $14bn and is now worth $27bn. Bears say it could suffer the same fate as Zynga, which has seen its shares halve in price as its games struggled to find favour mobile after their initial popularity on Facebook.

King is on a sugar rush, taking more than $6m a day in revenues last quarter after its sweetie-themed puzzle game became one the highest grossing iPhone app ever last year.

The shares will begin trading on the New York Stock Exchange on Wednesday, under the ticker symbol KING, making instant fortunes for the executives, directors and early investors who are selling shares into the float.

The company will create between 100 and 140 millionaires, according to estimates by the research firm Privco, which says around 56% of the shares are owned by institutional investors, 31% by executives and founders, and a final 12% by more junior, non-executive employees. Many have yet to take full ownership of their shares, which will be granted over a period of years, but if King's stock stays at or above the float price, these paper fortunes will eventually be exchanged for real money.

However, some analysts have warned that the shares may be overpriced, with King heavily dependent on one hit game. Candy Crush accounted for 78% of its developer's revenues last year, but it has already slipped out of the top 10 in the UK and US download charts.

"Revenue concentration in one game would still be palatable if in fact the game was growing," Sterne Agee analyst Arvind Bhatia told Bloomberg. "Because it's not, that's a double whammy."

Priced at eight and a half times last year's adjusted earnings before interest, tax, depreciation and amortisation of $825m, King is slightly cheaper than more established rivals Activision Blizzard and Electronic Arts, which trade at 10 times EBITDA.

King's chief executive, Riccardo Zacconi, whose stake will be worth $700m, is pinning his hopes on new release Farm Heroes, which debuted on Facebook and made the transition to a smartphone app in early January, while an older title, Pet Rescue, is still performing well. These two games, together with Candy Crush, represent 95% of revenues.

"Candy Crush Saga is a phenomenon, up there with 50 Shades of Grey, Flappy Birds and Gangnam Style," said games industry expert Nicholas Lovell. But he fears the studio will not enjoy such success a second time. "It has also struck oil once. I am nervous valuing it on the basis of striking gold again."

King made $1.9bn in revenues in 2013, and Sterne Agee estimates these will rise to $2.62bn in 2014, as more titles make the transition to mobile and Farm Heroes picks up followers. Its daily users have risen from 8m before being released on iPhone and Android to 20m by the end of February.

Lovell's conclusion is that King is worth less than $5bn, and fears sceptical traders could force a share price collapse in the coming weeks. He wrote on his Gamesbrief blog: "I expect the buyers to be the ill-informed and the followers, not the price setters. I expect the price to fall over the next four weeks. If it does, it won't fall to my $5bn. The market will get angry and fearful. The price will plummet."