King IPO update: King Digital Entertainment, maker of several hit social Internet games, filed for a U.S. initial public offering (IPO) with the U.S. Securities and Exchange Commission today (Tuesday).
The stock will be listed on the New York Stock Exchange under the symbol "KING," with J.P. Morgan Chase & Co. (NYSE: JPM), Credit Suisse Group AG (NYSE: CS), and Bank of America Merrill Lynch (NYSE: BAC) leading the process.
With today's filing, King gives investors a glimpse at what they'd be buying with a King IPO or stock investment. Check out these shocking usage numbers from King and the Internet gaming industry, straight from today's filing:
Even with the strong usage numbers, it's King's monetary model that will prove to be the downfall for investors...
The company's game downloads are free. Instead, the company turns a profit from users who buy items to help them advance in-game. About 4% of its daily user population buys such "power ups," wholly accounting for King's massive revenue.
The profit set up is a lot like Zynga and its free-to-download game "Farmville," which proved to be an IPO disaster for investors.
In 2011, Zynga Inc (Nasdaq: ZNGA) priced its IPO at $10 a share, making it the biggest Internet IPO since Google's (Nasdaq: GOOG) back in 2004. By early 2012, Zynga was worth $11.5 billion.
But soon after the IPO, Farmville's viral popularity began to wane.
Between March and November 2012, Zynga stock prices fell more than 80% and it was forced to drastically downsize. Zynga stock presently sits at $5.09 per share; it hit a 52-week low of $2.50 per share and a high of $5.15 per share.
Still, the factor that will deter investors the most isn't King's similarity to Zynga.
It's this number that was released with the filing today...
King revealed today that its average monthly payers have already declined by 1 million since the third quarter of 2013. Its Q4 numbers for revenue, profit, and adjusted earnings are also falling.
"The first law of capitalism is to make money while the sun shines," Money Morning Chief Investment Strategist Keith Fitz-Gerald said. "For investors, this is probably nothing more than a fad."
Much like Farmville's viral burst and decline, King's games are likely to suffer the same fate. And those monthly "power up" buyers that account for King's billion-dollar-plus revenue will fade with it.
"This is a trade if you're nimble and quick about it, perhaps, but it certainly doesn't fit my idea of an investment," Fitz-Gerald said.
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