This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

King Digital's Doubters Are Wrong

Stocks in this article: KINGEAATVITTWO

NEW YORK (TheStreet) -- You've heard it, all the negative publicity over King Digital Entertainment's initial public offering.

One-hit wonder. What the hell is Candy Crush Saga?

Well, when you stop carping and actually look at the company's F-1 IPO filing, you see a healthy business model.

I'm not saying I'm buying shares of the stock on Day 1 Wednesday when it starts trading under the ticker symbol of "KING," but the assumption -- yes, mine, too -- was that King was a joke of an IPO. But is it?

In the F-1 filing, you'll see that King had annual 2013 revenue of $1.88 billion. This dwarfs 2012's revenue figure of just $165 million, and actually isn't all that far from the $3.8 billion in revenue Electronic Art's (EA) had in 2013. At least when you consider how long each company has been established. 

Furthermore, King has been cash flow-positive since 2005, currently has no debt and has $408 million in cash. 

In 2013, earnings before interest, taxes, depreciation and amortization and adjusted margins also rang in at an impressive 44%, while the company earned $4.65 per share for the year. 

So by all accounts, this company actually has some sexy metrics and by most standards could have a reasonable valuation for its current performance, pending on the opening price of the stock. 


WATCH: King Digital IPO Has Investors Waiting to Taste Candy Crush

King Digital is looking to price between $21 to $24, giving the company a valuation of roughly $7.5 billion. In comparison, Electronic Arts currently has a market cap of roughly $9 billion, Activision Blizzard (ATVI) has a market cap of $14.6 billion and Take-Two Interactive Software (TTWO) has a market cap of $2.1 billion. 

Despite the high margins, solid free-cash flow, no debt, plenty of cash and high revenue growth, there lies one problem with this stock: Candy Crush Saga

The game accounted for 78% of the company's total gross bookings. An additional 17% of total gross bookings came from just two other games (Pet Rescue Saga and Farm Heroes Saga). In all, 95% of the company's total gross bookings are comprised of three games. 

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs