EXCITEMENT about the flotation of one of the UK’s hottest internet companies, King, is increasing by the day. Sadly the listing will not be in London, which robs the City of a fantastic opportunity to demonstrate that our public markets are fully recovered, even for high-flying growth companies.
That aside, the growth of King, the originator of the massive internet game show-stopper Candy Crush Saga, is a groundbreaking moment for the UK internet space and there will be many of its ilk, including the Moshi Monster creator Mind Candy, watching with bated breath to see how its transition onto the public arena goes.
King has enjoyed incredible success over a ten-year period, with particular growth in the past year. Sales this year are set to top $1bn, up from about $500m last year, and most of this is internally driven. King games, which are free to join but carry charges during games to take the player to higher levels, are played around 1bn times a day, equally attractive on mobile devices as they are on Facebook.
But the group has a set of issues to address in the run-up to a flotation. There are perhaps three major issues, although this is not an exhaustive list, that will be taxing the bank advisers as we move towards lift-off on the IPO.
The first will be to address concerns that King is another Zynga, the games group whose shares fell sharply after flotation in the US last year. The second will be to address regulatory concerns. There will also be questions about how much of their holdings’ existing shareholders wish to sell.
On the Zynga question, the company has some strong arguments. Although Candy Crush Saga accounts for 70 per cent of its game-playing time currently, the group has 150 games, one of which, Pet Rescue Saga, is already number two on Facebook. All in all, King has 150 games and has generated them mostly internally.
Regulatory issues could be a concern. The OFT’s main focus is on the sale of in-app purchases to children and while only nine per cent of Candy Crush Saga players come from this category, the interest of the regulators into the possible addictiveness of games could become a growing problem for King and its peers.
The OFT’s consultation process comes to an end in mid-November, meaning the noise around the issue of who plays these games and whether there should be some restrictions on them or more clarity about their pricing becomes an issue.
On the issue of selling shareholders, I hear that chief executive Riccardo Zaccioni and other investors Apax and Index Ventures are keen to sell around one fifth of their holdings, which should be palatable to US investors. The King IPO Saga is about to begin.