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Investors Go Crazy For the Candy Crush IPO — But Should You?

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Investors Go Crazy For the Candy Crush IPO — But Should You?

Posted on 22 March 2014 by Callum Denness

Another day, another crazy internet IPO.

Following Facebook and Twitter’s successful floats, King Digital Entertainment has also joined the IPO party. It’s the maker of Candy Crush Saga, and it’s expected to be valued at $US7.6 billion when it goes public this month.

For the uninitiated, Candy Crush Saga is a free mobile app that requires the player to push together matching coloured candy into lines of three.

Apparently it’s addictive, and has some impressive numbers behind it.

Since launching in April 2012 it’s been downloaded over 500 million times. And it has generated revenue of US$602 million in the fourth quarter of 2013 for King. That’s up from US$22 million in the first quarter of 2012.

That’s big revenue growth, sure, but it’s mostly due to Candy Crush downloads. King makes around 180 other games which don’t even come close to the popularity of Candy Crush.

Can Candy Crush sustain it’s growth?

The mobile game app is a big market — estimated at US$17 Billion.

But it’s unlikely Candy Crush will be able to sustain its growth.

Games are essentially a single-use products. While other tech companies can expand their platforms — think of the new features Facebook constantly adds — games remain mostly the same.

That’s fine if the product in question is one you need, or one it does a better job than your competitors.

But there are literally hundreds of millions of digital games on the market, each there to tempt bored commuters or lazy office workers.

And it seems unlikely that Candy Crush will remain the game of choice. In fact, odds are that another fad will sweep the game away.

Fads of the past show Candy Crush IPO is overrated

How can we be so sure?

Well, other popular games have come and gone.

Farmville for example was once the ‘addictive’ game of the moment.

In a similar flurry of insanity the company behind the hit Facebook game was valued at US$7 billion when it started trading on the stock market in 2011. At the time, that was the biggest internet IPO since Google.

But guess what? Farmville’s popularity waned and its stock price has since halved.

You’d think that would cool the excitement surrounding the >Candy Crush IPO.

But no, it hasn’t.

Instead, investors are smacking their lips. Are they crazy? Possibly, but no more crazy than other tech investors of late.

And King has one thing many other tech companies don’t: an ability to turn a profit.

Making a profit before tax of US$714.3 million last year, King stands out among other tech firms that have popular products, but no way of making money.

Still, the company seems massively overvalued considering how fickle our tastes in online gaming are. Maybe Wall Street traders are just looking for an excuse to play Candy Crush in the office?

Callum Denness
Contributing Editor, Money Morning

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Why You Should Stay Away From Facebook Shares

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Why You Should Stay Away From Facebook Shares

Posted on 24 August 2012 by MoneyMorning

High profile flops don’t come much bigger than the flotation of website Facebook NASDAQ: FB. At its peak in the immediate aftermath of  the Facebbok IPO, it was trading at $45. At the moment, it trades at just under $20, less than half this level.

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Sorry, Facebook is Still Only Worth $7.50 a Share

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Sorry, Facebook is Still Only Worth $7.50 a Share

Posted on 08 August 2012 by MoneyMorning

The technorati took me to task. So did Wall Street.

They were agitated by an article I wrote in May explaining why the world’s most hotly anticipated IPO, Facebook was worth a mere $7.50 a share at best.

‘Out of touch,’ one of the critics said. A ‘luddite’ charged another.

‘Doesn’t grasp the significance of so many users,’ one Wall Street insider opined – who happened not coincidentally to work for one of Facebook’s investment bankers.

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Three Ways to Avoid the Next Facebook IPO Fiasco

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Three Ways to Avoid the Next Facebook IPO Fiasco

Posted on 02 June 2012 by MoneyMorning

On the heels of the Facebook IPO fiasco, many investors are wondering how they can find the next best thing and avoid getting “facebooked” in the process.

Tall order? Not really.

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What Facebook Stock is Worth (At Best)

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What Facebook Stock is Worth (At Best)

Posted on 28 May 2012 by MoneyMorning

Duh on you if you bought the Facebook IPO.

Double duh if you’re thinking of buying Facebook stock now that it’s fallen to $32 a share and lost $17.16 billion off its initial $104 billion valuation.

The company is only worth about $7.50 a share. And, no. That’s not a typo. There is no missing zero or a placeholder.

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Facebook: A Replay of Another Bad Deal?

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Facebook: A Replay of Another Bad Deal?

Posted on 26 May 2012 by MoneyMorning

I hope you didn’t buy shares of Facebook (Nasdaq: FB). The valuation was always too aggressive.

And increasing both the price and amount of Facebook stock at the last moment ensured that both underwriters and retail investors ended up with far more shares than they bargained for.

In fact, the Facebook fiasco reminds me of another deal that marked the peak of the dot-com boom.

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Is Facebook The New Telstra?

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Is Facebook The New Telstra?

Posted on 06 February 2012 by Aaron Tyrrell

Sick of all the jabber about the Facebook IPO?

How can a company that makes $1 billion a year be worth $80–100 billion to the market? And who cares? You’ll have to go through a whole lot of rigmarole to invest in it even if you want to.

So rather than join the hype and speculation, we thought it might be more valuable for you if we looked back at what happened when a similar stock went public in Australia…

You know what we’re talking about… Continue Reading

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Facebook Shares – Notice for Mad Punters: Buy This Stock

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Facebook Shares – Notice for Mad Punters: Buy This Stock

Posted on 03 February 2012 by Kris Sayce

Whatever you think of Facebook (our old pal, Dan Denning says Facebook “diminishes the quality of your thought…”) there’s no arguing it’s a great example of free market entrepreneurialism.

For an eight year old company, it has come a long way.

According to the Form S-1 filed with the U.S. Securities & Exchange Commission, Facebook made a USD$1 billion profit in 2011. That’s the third year of profits in a row. It made USD$229 million in 2009 and USD$606 million in 2010.

Make a note. That’s profit. Facebook has more cash coming through the door than it has cash going out the door.

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