- The Washington Times - Wednesday, March 26, 2014

Wall Street proved immune to a sugar high, for one day at least.

The developer of the wildly popular game “Candy Crush Saga” made its debut on the New York Stock Exchange Wednesday, but the initial stock price offering of $22.50 a share did not prove attractive to investors. Falling in price right from the opening bell, shares in London-based mobile gamemaker King Digital Entertainment ended the first day of trading at $19.01 — a 15.5 percent one-day decline.

King Digital’s IPO was one of the most closely-watched tech stock sales since Facebook went public in May 2012, and was seen as a key test of market sentiment for mobile game makers after the less-than-warm welcome given to “Farmville” maker Zynga in late 2011.

Gerard Hoberg, associate professor of finance at the University of Maryland, said it is uncommon to see a company significantly drop on its first day of public trading.

“It is likely without any new news, the price will stabilize not so far from where it is now,” he said.

While the crushing candies in King Digital’s hit product continue to fascinate millions, investors are skeptical that the company will replicate its success and be worth the long-term investment.

The company has several other “Saga” games, including “Papa Pear Saga” and “Farm Heroes Saga,” but “Candy Crush Saga” continues to be by far the biggest chunk of its revenues.

This game, where the object is to line up at least three candies to gain points, attracted 69 percent of King’s user traffic in February. The game has achieved such popularity that Facebook now has a “Candy Crush Addicts” page where recovering obsessives pray: “Our Mr. Toffee that art in Candy Town, crushing be thy name. Your King.com come, combining will be done, on chocolate mountain as it is in lollipop forest.”

But analysts say investors fear the company has put all its eggs in one candy basket.

“When you buy tech stock, very little of it is based on the physical, present business,” said Anil Makhija, professor of finance at the Fisher College of Business at the Ohio State University. “A lot of what you are paying for is the future business.”

King Digital’s SEC filing alerted investors with 24 pages of risk factors that could detrimentally affect their stock. “We cannot assure you that this level of significant growth will be sustainable in the future,” the report stated.

Mr. Hoberg said Google diversified as a public company with advertising and other strategies to boost its value to investors as a public company.

“When I look at Candy Crush and video games, … it’s not obvious to me five years from now what path they are going to take to be a multiplier right now,” he said.

King’s revenue has increased from $22 million in the first quarter of 2012 to $602 million in the fourth quarter of 2013. In 2013, profits before taxes grew to $714.3 million compared to $11.1 million in 2012.

Most of King’s revenue is based on users purchasing virtual items such as extra lives or boosters on their mobile games. In “Candy Crush Saga,” if the player runs out of lives, he can continue crushing for a small fee.

King has set a sticky precedent for future tech companies looking to go public, said Mr. Hoberg. Based on the initial offering price of $22 per share, the company was worth a projected $7.6 billion. By the end of the day, the company was valued at about $6.5 billion.

“It indicates caution in the marketplace on tech firms,” he said.

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