Furthermore, King Digital is filing for an IPO after an unprecedented rise in its business. After all King Digital's revenue grew over tenfold between 2012 and 2013. In the fourth quarter, its monthly active users grew to 408 million, or about 509% from year-earlier levels. However, sequentially the company's users only grew 13% from the third quarter of 2013 to the fourth quarter of 2014.
King Digital's growth could be slowing markedly as it seeks an IPO. In a Monday filing, King Digital said the company averaged 144 million daily active users in February, with more than 1.4 billion games played per day. That represents 12% rise from December daily active users, indicating a continued slowing of growth.
Other risks include high competition in mobile gaming from Zynga, Electronic Arts (EA), Rovio, Tencent and the like, in addition to software and hardware giants like Amazon (AMZN), Apple (AAPL), Google (GOOG), Disney (DIS) and Yahoo (YHOO), another risk factor disclosed in the prospectus.
Strong Track Record
On the other hand, King Digital's track record currently speaks for itself. The company only raised $9 million of primary capital since inception and has generated positive cash flow from operations for each of the last nine years.
"We believe we have a repeatable and scalable game development process that is unparalleled in our industry. In the last decade, we have developed a catalog of more than 180 game IPs, which we continuously expand," the company stated.
Investors buying into King Digital's IPO and valuing the company using current earnings figures will have to hope that its track record can be matched when it hits stock market.
Zynga's plight and the similar boom and bust fad cycles of other popular games are cautionary tales for investors to consider.
King Digital will list on the New York Stock Exchange under the symbol "KING." JPMorgan, Credit Suisse and Bank of America are leading the offering with another 10 underwriters.
-- Written by Antoine Gara in New York