There was much excited or dismissive chatter about British mobile game titan King on Wednesday after the Candy Crush Saga maker announced its initial public offering and implied it was seeking a valuation at nearly $8 billion. Isn’t this crazy? Are we not in the middle of another nutty tulip mania?
Well, no. King is generating nearly $2 billion in annual sales. The IPO values the company at roughly four times annual sales. That is roughly Coca-Cola’s valuation. Coca-Cola sells mostly sugary drinks during a time when there is a strong and growing backlash against sugar. Coca-Cola’s sales are declining by about 4% year over year.
Why would it be nutty to value a highly profitable mobile game company that just delivered 1,000% sales growth at the same level as a beverage company with declining sales? Each King employee generates tens of millions of dollars in sales. Each Coca-Cola employee delivers $300,000 in sales. What’s nuttier?
Twitter is valued at over 20 times its annual revenue. Don’t even ask about the profitability of Twitter or Amazon — that is purely a hypothetical possibility that may not even happen in the future. King, meanwhile, made over a $500 million profit in 2013.
Of course, King is entirely too dependent on a single game. But that game has demonstrated an eerie ability to resist sales erosion. It’s still the No. 2 iPhone and iPad app in America and near the top of sales charts across the world. It is one of the very few apps that managed to crack the Japanese top 10 sales chart. It is one of the even fewer apps that has also had success in the supremely insular Korean market.
King has also shown the ability to churn out solid, leggy earners like Pet Rescue Saga and Farm Heroes Saga. Both are right now top 10 hits in the U.S. iOS revenue charts. Of course there are no guarantees that King can ever produce a mega blockbuster like Candy Crush again but there is a guarantee that King can produce three U.S. top 10 grossing apps simultaneously. The company is proving that right now, today.
Moreover, King has a highly sophisticated analytics system evaluating and processing its base of more than 300 million monthly active users. It can identify which of these players are paying, what they are paying for, when and how. It can aim marketing campaigns of novel games at them with pinpoint accuracy. It owns its customers far more intimately than traditional game vendors ever did.
What more can you ask of a game maker?
