King, the London-based games developer behind the addictive app Candy Crush Saga, plans to float in New York with a market valuation of almost $7.6bn – four times the size of the company behind the hit game Grand Theft Auto, and within reach of Electronic Arts’ $9.2bn.
The pricing is at the top of the range that King announced for its initial public offering, in which the company plans to raise as much as $530m, and points to its confidence in being able to replicate Candy Crush’s runaway success.
King, founded in 2003, said in a filing with the Securities and Exchange Commission that it planned to sell 22.2m shares for between $21 and $24 a share in its IPO on the New York Stock Exchange.
Just under a third of the shares being sold come from existing shareholders, which include Apax Partners and Index Ventures.
Chief executive and co-founder Riccardo Zacconi’s stake could be worth as much as $720m.
King has had huge growth in recent years and now boasts about 324m monthly users, most of whom play its games on their mobile devices such as smartphones and tablets.
More than three-quarters of King’s gross revenues coming from a single game: Candy Crush Saga. The game invites players to form rows of three jellied sweets. People can play for free but have an option to pay to speed up their progress through the game and pass difficult levels.
Ed Barton, gaming expert at Strategy Analytics, said the sector was scattered with companies that experienced huge success with a single game but were unable to repeat the success – the most notable example being Zynga, whose share price tumbled after its Nasdaq IPO in 2011.
“There’s no doubt that King has some serious management smarts,” he said. “But how many more Candy Crushes can they make?”
There are already signs that the company’s growth is slowing.
Candy Crush saw its daily active users rise from 93m to 97m between December and February, but the average number of times the games were played a day inched down from 1,085m to 1,065m.
Only 4 per cent of King’s players make purchases on any given month – and the average number of players buying something at least once a month fell 7 per cent in the three months to the end of December.
While the number of daily active users of another King game, Farm Heroes Saga, jumped from 8m to 20m, user numbers for Pet Rescue Saga, Papa Pear Saga and Bubble Witch Saga were flat.
King’s adjusted earnings before interest, tax, depreciation and amortisation rose from $4m in 2011 to $825m in 2013, according to its prospectus.
Full-year sales rose to $1.8bn with pre-tax profit of $714m. The average revenue per employee in 2013 was $2.7m.
The games developer, which was co-founded by Italian entrepreneur Mr Zacconi, was founded in Sweden but has its financial and administrative headquarters in the UK.
It started out making games for the web and later for Facebook, before hitting the jackpot in the past couple of years by designing games for mobile devices.
Like almost all of the most successful mobile games developers in recent years, King operates a “freemium” business model, whereby games are free to download and play – but players are able to pay small amounts of money for additional features.
The banks underwriting the IPO, which include JPMorgan, Credit Suisse and Bank of America Merrill Lynch, have an overallotment option to purchase an additional 3,330,000 additional ordinary shares – about 1 per cent of the enlarged equity – from King’s existing investors.
On Thursday King will embark on a two-week investor roadshow across the US and Europe.
Additional reporting by Arash Massoudi
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