Some analysts not sweet on Candy Crush maker's IPO

King Digital is expected to price its offering Tuesday, but the company is being called a 'one-trick pony' despite good financials and the game's soaring popularity.

By MSN Money staff Mar 25, 2014 12:04PM

Boy playing 'Candy Crush Saga' on an iPad (Hayley Louize Ballard/Alamy)By Benjamin Pimentel, MarketWatch

 

MarketWatch on MSN Money The good news for King Digital Entertainment, maker of the popular "Candy Crush Saga," is that the social gaming company's initial public offering is hot.


The bad news is some experts worry about what's been described as the company's fuzzy path to growth. In fact, some experts use the same phrase to describe the Dublin, Ireland-based tech company: one-trick pony.


"This is, in my opinion, a one-trick pony," Scott Sweet, senior managing partner at IPO Boutique, told MarketWatch.


Matthew Turlip, analyst with PrivCo, a private company financial data provider, also said, "We think it looks like Zynga (ZNGA), another one-trick pony."


King Digital is expected to price its IPO on Tuesday and to begin trading Wednesday, according to Sweet. The game developer is offering 22.2 million shares at a price range of $21 to $24.


The stock is "oversubscribed" said Sweet, who added, "It wouldn't shock me to see a pop" and that's mainly because of the enormous popularity of Candy Crush. The game was the No. 1 app based on monthly active users, according to the latest data on AppData.


In its IPO filing, King Digital said Candy Crush Saga had 97 million daily active users and 1.1 billion daily game plays. Overall, the company had an average of 144 million daily active users who played its games more than 1.4 billion times a day as of February. King Digital's revenue soared from $164 million in 2012 to $1.88 billion in 2013, according to the filing.


"Their financials look incredibly well," Sweet said. But the fact that a big chunk of its earnings comes from Candy Crush should make investors worry, he said.


"Unless a breakthrough comes out, they're expected to go down," Sweet said. "This also in my opinion should not be bought like Facebook (FB) and expect it to continue to grow."


Turlip also thinks there will be strong demand for the King Digital IPO, "but it will be strong retail demand." He said the big investment firms "will likely make a quick exit or they won't be holding it for long."


"I don't see much of a future in King beyond what's going on with Candy Crush right now," he added.


In fact, comparisons have been made with Zynga which was also seen as being too dependent on a popular game, Farmville, and its relationship with Facebook. Zynga shares have dropped more than 50 percent since going public in 2011.


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