Is $7.6 billion a bargain for 'Candy Crush' maker?

Game developer King Digital is seeking a steep valuation in its upcoming IPO. It's aggressive for a company with just one hit product, but still a discount to some peers.

By MSN Money Partner Mar 13, 2014 12:59PM

Candy Crush Saga © GABRIEL BOUYS/AFP/Getty ImagesBy Renée Schultes, The Wall Street Journal


King Digital Entertainment is a casual gamer with a serious valuation.


The Wall Street Journal on MSN MoneyThe "Candy Crush Saga" maker set an indicative price range for its New York initial public offering Wednesday, valuing the casual-games developer at up to $7.6 billion.


King still needs to prove its business is sustainable. But its proposed valuation at least seems to offer investors some buffer against the risk of a one-hit wonder.


The success of Candy Crush has left King with big shoes to fill. Although Candy Crush is still the second-highest grossing game in the U.S. app charts a year after launch, bookings fell in the fourth quarter. And the game generates 78 percent of King's sales before app stores take their cut. Sure, rapid growth of new titles such as "Farm Heroes Saga" is promising. But with 20 million daily users, it has a long way to go to reach Candy Crush's 97 million.


Still, at between nine and 10.5 times 2014 earnings, according to bankers' consensus forecasts, King is being pitched at a discount to peers. That assumes 30 percent earnings growth this year.

Tokyo-listed GungHo Online Entertainment trades at 11.9 times this year's earnings, according to FactSet. GungHo also relies on one title, Japan's top grossing game "Puzzle & Dragons." But its games haven't traveled as well as King's, potentially limiting growth outside Asia. While Candy Crush is a top 20 grossing game in Japan, Puzzle & Dragons ranks much lower in the U.S., according to AppAnnie.


At 2.8 times 2014 sales at the midpoint of the price range, King also comes in well below Zynga (ZNGA), a company that is still making the awkward transition from games played on desktop computers to smartphones and tablets. King makes 73 percent of its bookings from mobile, compared with Zynga's 34 percent.


If King's goal is to create major gaming franchises, a better comparison might be to traditional games publishers, such as Activision Blizzard (ATVI) and Electronic Arts (EA). They trade at 16 and 20 times forecast earnings, respectively. A decent discount seems fair. While traditional publishers face much higher development costs than King, hard-core gaming fanatics can mean their franchises last for years; Activision's "World of Warcraft" took six years for subscriber numbers to peak.


King believes that it has plenty of growth to come. But investors should rightly want protection against earnings volatility in a market where barriers to entry are low, technology is always evolving and casual gamers' tastes are fickle. Game on.


More from The Wall Street Journal


18Comments
Mar 13, 2014 6:48PM
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There's a sucker born every minute!
Mar 13, 2014 7:37PM
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Nope. Not worth it.

The online version was always getting me to buy stuff
I quit playing Candy Crush months ago.
Mar 13, 2014 7:35PM
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If King Digital can get $7.6B for their company, they need to sell it *today*.  Because casual game software has an extremely short shelf life, and with a single product generating over 2/3 of total revenue, once Candy Crush's popularity starts to dwindle, the value of this company is going to bottom out.  Candy Crush is not going to be able to maintain 97 million users, or its place on the most popular downloads list, 3 years from now.  King needs to start thinking about cashing out in 1 year or less, or be stuck with the digital equivalent of 7.6 billion Beanie Babies.
Mar 13, 2014 7:40PM
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Pogo.com has a version on their site called Sweet Tooth.  It has been around for years so this game is nothing new.  Big deal.
Mar 13, 2014 8:48PM
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Anyone that would pay that much for a fad/one hit wonder is a fool. It will be a worthless nothing but a memory old news in a few months.
Mar 13, 2014 9:24PM
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King is bad news all around. Who the he** copyrights the word Candy? Now they want to do it with the word Saga.. That screams really bad news. The company is nowhere worth a few hundred grand let alone 7 Bil. Nothing that can literally fail over night is worth much of anything. All it takes is people to get bored with the app and poof! All company revenue gone, so much like a fart in the wind....
Mar 13, 2014 10:48PM
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I wonder if they will pay their fair share of royalties to the creator of Candy Swipe, Albert Ransom , who King blatantly ripped off.
http://phandroid(dot)com/2014/02/12/candy-crush-saga-trademarks-spark-controversy-over-similar-title-released-2-years-prior/

Mar 13, 2014 10:25PM
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Vaporware..........some people never learn
Mar 13, 2014 10:14PM
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Candy Crush is no longer valuable since any person can just go to You Tube to download a simple hack with instructions that will give them unlimited lives. So there's no more money to be made off the desperate person that will spend and spend just to get to the next level. The makers of Candy Crush better take whatever they can get because Candy Crush is old news!
Mar 13, 2014 10:32PM
Mar 14, 2014 12:47AM
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Its just a rip-off of the game bejeweled witch I've played for over 10 yrs. 
Mar 13, 2014 10:19PM
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Unless they come out with a second killer app then they are not worth half that price.
Mar 13, 2014 11:52PM
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That game has peaked, you would be buying a declining market share and hope they can do it again.  But now they have a lot of competitors.
Mar 14, 2014 1:58AM
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With the whole Candy Swipe - Candy Crush mess, I can't believe anyone would want to throw their support behind Candy Crush.


As for me, I don't have time for these types of games anyway.  Don't get me wrong, I work from home so I have plenty of downtime; I just use it far more constructively.  No video game or computer game can beat a good book. 

Mar 14, 2014 1:41AM
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Candy Crush pulls in an estimated $300k a day!
Mar 14, 2014 12:55AM
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As has already been said the original idea was on Pogo years ago long before Electronic Arts bought Pogo.  I surprised EA hasn't looked into a copyright issue unless they are already getting a cut ;)

Having said that I would value this company at around 250 million unless they can come up with further original games not based around the first success. 

It's easy to be a "One hit wonder" but for a valuation like this you need a proven pedigree.

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