What’s happening to Candy Crush?
King Digital, the maker of Candy Crush and other addictive mobile games, is being acquired for $18 per share in cash by Activision Blizzard, a mainly PC-based game maker, perhaps best known for Call of Duty and its multi-player online game, World of Warcraft. That’s a 20% premium from where King opened yesterday. Investors should be happy. After all, back in September the stock was a lot lower.
King’s mobile games were on the freemium model, where the game is free but virtual goodies cost real money. The game was addictive, and their initial public offering last year was widely anticipated. The stock listed for $22.50 / share. But it has struggled since then, never seeming to re-capture the original excitement. Now, Activision’s proposed take-out price is a 20% loss.
Source: Financial Visualization
Candy Crush—the marquis title—has remained a steady financial performer, consistently one of the top-grossing games in Apple’s app store. But King’s other games haven’t proven as popular—not even Candy Crush Soda, a related title released last year. It’s not easy to adapt to changing consumer tastes and moods. Rovio, the maker of Angry Birds, has yet to come up with a follow-on version as popular as the original.
The deal illustrates some of the dangers of a hot IPO. Everyone’s looking for the next Google—a phenomenal upstart that can take the world by storm. But running a public company is different than running a private one: different reporting, different rules, different pressures. The original business model may need an overhaul—and the current managers may not be able to execute a new strategy.
By buying King, Activision adds a successful mobile franchise its own stable of products. It’s just too bad King’s IPO investors ended with such a sour return.
Douglas R. Tengdin, CFA
Chief Investment Officer