King Digital Entertainment, the people behind Candy Crush, have filed Securities and Exchange Commission paperwork for its initial public offering. Candy Crush is an extremely successful business, but this is a wildly unpromising IPO.
Jay Yarow made a chart showing that casual gaming fads come and go. King right now is getting 78 percent of its revenue from a single game. It is, yes, working on new titles such as Pet Rescue Saga, Farm Heroes Saga, Papa Pear Saga, and Bubble Witch Saga.
But the basic question here is whether you think that success in creating one monster hit mobile game constitutes evidence that the company has a formula for generating hits. I would say the evidence from the rise and fall of Farmville and the strange tale of Flappy Bird is that this isn’t the case. These things become monster hits because they’re basically fads (or “memes” that “go viral” as we say in 2014) that benefit from attention spirals that eventually burn out.
The very fact that King Digital wants to do this IPO right now should actually tell you something. It’s not like the company desperately needs to go public to raise capital. And it’s not like the company has become so big that it’s in the Facebook situation of being basically unable to incrementally expand without going public. What you have is a case of founders and early investors trying to cash out while Candy Crush is still popular.