King.com, Maker of Candy Crush, files for IPO | Hacker News Reader

King.com, Maker of Candy Crush, files for IPO

money.cnn.com

Seems like a gutsy move considering King's only really breakout hit was Candy Crush a game that will undoubtedly not be nearly as popular as it was in 2013, in 12 months time.

This is a smart move though, cash in while they still can and then jump out of the ship before it hits the financial iceberg and sinks. Unless they can release another popular game, I can't see King being a worthwhile investment for anyone and the only people coming out on top will be a select few.

I don't mean to sound cynical, but seems filing for IPO is the new trendy thing to do nowadays. Companies with serious flaws, King's being they have one single product they can't really iterate upon to keep relevant. For all we know though, this makes King stronger and they'll release more popular games, seems they have the chops to pull off another hit again. Halfbrick did it like 3 times over, it's not impossible.

I see it as a LinkedIn strategy. No real future, ephemeral momentum, and likely a press-release driven stock price. Is there a merchandising angle to their games?

LinkedIn (LNKD) is one of the world's largest Internet companies by market capitalization and is worth $23b. The company saw $1.5b top-line revenue in 2013 and over 50% revenue growth from 2012 and has been around for 8 years with steady growth. These are totally different companies and require completely different valuation models.

https://www.google.com/finance?q=NYSE%3ALNKD

Different valuation models, sure, but culturally possibly more similar. Maybe I'm just hoping against hope, but LNKD seems to have a consistently precarious position as this decade's Dice or Indeed.com or any other HR substitute company, and much less as the social network that their valuation would appear to be based upon.

But this is all just digression, so I'll basically concede the point.

Groupon GRPN is a better example of the "IPO before the collapse" model.

Zynga would be a better analogy...

Investors will have to be very confident that the company is capable of producing another huge smash hit. Generally the pattern has been cashing in on the hype of the previous smash hit, then falling into a sort of sophomore slump, then death by inches.

King has certainly squandered a decent chunk of its gaming-community good will by this whole candy/saga trademark business. That probably doesn't amount to a lot of its users, however, and even fewer of its paying users.

My biggest concern as an investor would be whether King is capable of producing their own IP, or if they're going to need to keep going down the Zynga route of copying other designs. Integrity matters when you're running a public company, not least because investors don't appreciate controversy.

> King has certainly squandered a decent chunk of its gaming-community good will by this whole candy/saga trademark business.

Ironically, I was about to say something like "I guess this explains the recent trademark business; they're trying to look like they're protecting their IP so they look better to investors.". And here you are saying the opposite. Is it possible that the same move could increase the perceived value to investors while actually decreasing it by squandering user goodwill?

I guess we'll know soon! Clearly it shows that they are willing to address issues on the business side with (perhaps excessive) zeal, but it also shows their audience that they are a heartless and clueless gaming company. Of course, it's not like other billion-dollar gaming companies have died on account of their heartlessness and cluelessness.

I think it's more that they're trying to look like they have IP to protect.

The shares are poised for a spectacular collapse as Candy Crush eventually slows down. However, there is a real business behind King that has nothing to do with flash-in-the-pan apps. King.com's primary business was, until recently, a skill games tournament site. They are the largest such site in the world and have been in business for over 10 years. They still own it but have rebranded that part of the business as RoyalGames.com. Only about $20 million of their revenue came from this business in 2013, but that is the only predictable part of the company. The rest is sure to go down from where it is today.

If you buy the shares, base the value on the Royal Games revenue - not on mobile apps that will quickly lose steam. It's about 1% of revenue. Take their IPO price, subtract 99%, and you have the appropriate valuation.

"The company generates revenue by selling virtual items to a small fraction of its players who wish to enhance their playing experience" should read "The company generates revenue by psychologically manipulating players into spending money in order to progress through the game"

"Versace/Starbucks/Cadillac generates revenue by psychologically manipulating customers into spending money in order to .."

Are you serious? You're comparing micro-transactions in Candy Crush to Versace/Starbucks/Cadillac. Do you honestly think that's a reasonable comparison?

There is a comparison. Both companies purposefully attempt to persuade people to pay money for their products. Like every other company that has ever existed.

there's a difference though. In one, you get a useful product: a car. And a good feeling that goes with it.

What king does, and what is being called manipulation, does not result in satisfaction or good feeling. A person simply spends money in order to progress, but ultimately does not actually get an enjoyable experience or useful product out of spending the money. It's borderline gambling.

If King's customers didn't get satisfaction from their purchases, they wouldn't make the purchases. It sounds like you simply don't get satisfaction from that type of product (I don't either), so you leap to a normative claim about which feelings are "legitimate" and which aren't. I don't agree with your comparison to gambling, but even if I did, I don't have a problem with gambling either.

Compulsion is not the same thing as satisfaction. Satisfaction is not the only thing that drives purchasing decisions or compulsion. You don't get it.

your comments about gambling are really cold and detached from the real world suffering that gambling addiction causes people and their families.

How does one decide what is "compulsion" and what is "satisfaction"? What if someone really believes that they find Candy Crush fun and are very satisfied with the money they spend on it? Are they wrong? Are you able to determine what they truly enjoy better than they themselves?

People attempt to construct this dichotomy all the time, but I have yet to hear of a decision procedure.

Gambling addiction is unfortunate, but completely irrelevant to this point. People get addicted to prescription pain medication, exercise, and sex, but I'm not against any of those things either.

What about Versace? Is a watch a useful product when its priced at $2,000? Is convincing others to pay $1,500 for a pair of jeans anything other than manipulation?

Your counterpoint doesn't really hold any water. King might be sucking value out of manipulating customers into buying into imaginary value, but they are the far from the first successful company to do so.

that's not a fair comparison. those products are about conspicuous display of disposable wealth. Candy Crush impresses no one.

So now, only companies which sell things that you find satisfying or which impress other people are legitimate companies?

I think you are being deliberately obtuse. We are talking about exploitation here. Finding bugs in the human operating system and exploiting them. It's technically a legitimate business, but is it moral, or ethical? no.

You have not described any procedure to decide whether something is "exploitation/compulsion" or simply someone being persuaded to buy something they enjoy.

are you a computer with no native facility for judgement?

Are you implying that it's up to your judgement? What if someone else judges things differently?

Okay how about this for a definition of compulsion.

You do not want to do it, it causes you a lot of problems and pain, and yet you find yourself doing it anyway. That is compulsion. Have you never once experienced this in your entire life?

I've experienced that, but I don't blame the company that sells the product. Have you surveyed Candy Crush spenders to see if the game causes them lots of problems and pain? I highly doubt it does for very many.

>Candy Crush impresses no one.

Now you are moving the goal posts. So Versace is "fair" because of intangible feeling X, but Candy Crush isn't because of intangible feeling Y? For all you know high Candy Crush scores could be a display of high status on some college campus somewhere. Neither companies sell anything other than the feeling you get when you buy their product.

You can argue that versace is wrong on its own terms, but people aren't buying versace for the same reasons they buy candy crush power ups. Maybe you're right, maybe Candy Crush high scores does impress someone, but that's a superficial observation. the real question is why should it impress anyone? what did King do to make that impressive?

And is it really impressing other people that is truly the motivating factor in buying more power ups? Or is it.... the exploitation of bugs in the human operating system? The construction of game mechanics to manipulate people's emotions into doing things that don't make rational sense?

Loyalty programs are very similar psychologically to what King and other game makers do in their games to get you to buy from them. Give someone a reason to spend money and they will and without realising it, you've spent more than it cost you to give away that free coffee are purchasing 5 coffees.

starbucks relies on providing the user a quick fix of doamine when they feel stressed or unfocused, which keeps them coming back.

versace and cadillac rely on providing their customers a feeling of superiority and social status. cadillacs are arguably better engineered than other brands, but versace is clearly all about status.

i think it's a reasonable comparison, but as others have said, this is what most companies do anyhow.

It actually is rather solidly into gambling territory. It's basically a worse version of pachinko or even slot machines. It's primary purpose is to draw the user in to addiction in an unregulated system of player manipulation. There is nothing preventing those pathetic savages at king.com from implementing algorithms that manipulate the odds and outcomes to trigger users making in-games purchases.

A friend who works at a similar casual gaming company has told me exactly this. They a/b test giving the player a "run of luck", to see how that improves conversion.

That sounds like every startup, ever.

Becoming a publicly-traded company would only increase the odds of something like that happening, too, as they desperately try to increase revenue all the time.

This doesn't have to end badly if investors price the shares appropriately during the IPO process.

Not all revenue is alike and investors will apply a higher multiple when revenue is sustainable. I see substantial risk in much of King's revenue primarily because there isn't enough track record to know if it is repeatable and if their sources of customer acquisition will continue in a profitable way.

A good comp company would be Zynga (ZNGA) who rose to ~$1.3b in revenue in 2012 and fell 33% to the $870m range in 2013 and they now claim revenue has stabilized. In Zynga's case, I'd say much of their revenue was also indefensible yet they managed to hold on to much of it despite Facebook cutting off Zynga's traffic. Zynga is currently valued at $4.2b or $2.9b in enterprise value when you deduct out the asset value on the balance sheet. That means Zynga trades at around 3.5x gross revenue which is similar to Supercell's recent valuation in their sale to GungHo. Investors in Zynga made the mistake of assuming that Zynga's revenue would continue its meteoric rise and priced it ahead of its actual revenue.

Therefore, in King's case, a 3.5x revenue multiple on its 2013 trailing revenue might not be appropriate given that they already saw revenue decline in Q4 2013 sequentially. I'd therefore say that 33% (possibly as much as 50%) is at risk in King's revenue so applying a very conservative 50% discount to their top-line would put it in the $1b range, and then apply a 3.5x multiple on top of that and King would be worth $3.5b in my book today. Given that I'm an investor and would expect a return on my money, and also that a lot of retail investors were burned with the Zynga IPO, investors might want a 10-20% discount on this price to ensure that it outperforms the market.

Relevant sources:

http://recode.net/2014/02/18/here-comes-the-candy-crush-ipo-...

https://www.google.com/finance?q=NASDAQ%3AZNGA

http://mitchlasky.biz/ea-and-the-future/

http://mitchlasky.biz/should-venture-capital-fund-games-comp...

So they don't expect any additional growth anymore and have decided this is the point they need to cash in.

Sell this racehorse before they need to give it away to the glue factory.

Waiting for this: https://news.ycombinator.com/item?id=3361212

Can somebody outline how society would benefit if this company received "public" money?

This is not meant as a flame, I am generally curious.

Is it supposed to benefit society? The benefit is that their shareholders will make money - they're a corporation.

So that the company can invest in future products and sell them to customers. If successful the investors make money, the company pays developers and customers enjoy whatever games the company makes.

The money is not 'public' in the sense of belonging to the government, but public in the sense that anyone can invest through the share market.

They don't just "receive" money they sell things for it. People vote with their money. That's capitalism.

This is a much too deep a question to adequately address in this medium. A better starting question might be:

Do capital markets have a natural or a constructed social utility?

If their social utility is natural, then finding out what benefit they might have to society is a sort of empirical question. But if their utility is a purely political construction, then their perceived benefit can be moulded to fit a desired outcome.

IPO is an acronym for initial public offering. In this case, public refers to individual investors, mutual funds, etc. that have the opportunity to purchase equity in the company on stock exchanges like the NYSE.

No government funds are invested (unless you count public pension investments like CalPERS) during an IPO.

Actually, states like California stand to benefit from King's IPO by way of capital gains tax revenue.

I think they would have a very big plan ahead and they planned it for the IPO (or its a new trendy way for fraud) :)

One of the reasons the game is so successful is because of manipulating and simulating human behavior

http://ireport.cnn.com/docs/DOC-1050994

Zynga 2.0.

Not even. Zynga had more than one hit to its name before IPO.

The end result of this will be a fantastic shareholder lawsuit.

Over what?

I don't see this going good

Does anyone else thinks that IPOs these days are just a sophisticated form of fraud?

No. Why would you say that? Nobody is forcing anyone to buy any share from this IPO.

Fraud has nothing to do with force. Fraud is based in deceit.

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