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Candy Crush IPO Could Go Bazinga! (But It's Probably Another Zynga)

Stocks in this article: EA NTDOY SNE TTWO ZNGA CRM ATVI

NEW YORK (TheStreet) -- On paper, I should be hot for the initial public offering of King Digital Entertainment. So why does it leave me so cold?

The numbers, as CEO Riccardo Zacconi might say, look bellissima. Dublin-based King put up $824.7 million in earnings before interest, taxes and non-cash depreciation and amortization charges last year -- a healthy 44% of its $1.88 billion in revenue, with a $567.6 million net profit.

At a $7.6 billion valuation, the midpoint of the pre-IPO range, $22.50 a share is not even 10 times trailing Ebitda -- comically low for a company that grew its sales 11-fold in 2013 and more than doubled not only its Ebitda but its Ebitda margin.

Its top product, the uber-popular Candy Crush Saga game, is ubiquitous, the #1 top-grossing game on mobile phones last year. Two stablemates, Pet Rescue Saga and Farm Heroes Saga, are also in the top 10 most-popular games for iPhone and iPad.  "What we have cracked is the monetization.of casual games,'' Zacconi brags in a video roadshow.

So why don't I like the deal? Three reasons, actually.

1. Concentration.
2. History.
3. The Curse of DiMaggio

The case that King Digital's story is just too good to be true begins with the fact that 95% of its sales come from just three of its 180 or so games, and 78% comes from Candy Crush Saga alone.

The next reason I just can't buy it is history -- there's too little of it, and too much.

For King itself, history is brief -- too brief. Its games exploded from basically nowhere in a year or two. In 2011, the now 11-year-old company had $63.9 million of sales, basically broke even and had barely grown since 2009.

Things heated up in 2012, and by 2013 the company made a big move to mobile. Sales went nuts. More than 70% of sales were on mobile devices last year -- players get short periods of play for free but pay to unlock new levels or extend their playing time.

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