Candy Crush Coming To China As King Seeks To Recover

4/17/14 10:48AM EST

Candy Crush Coming To China As King Seeks To Recover Candy Crush Coming To China As King Seeks To Recover

Image via Twitter/CandyCrushSaga

Candy Crush Saga fans are about to swell in number. The explosively popular game from King Digital Entertainment PLC (NYSE:KING), a Dublin, Ireland based games-maker, is about to hit China. The free-to-play game will be launched by internet services firm Tencent Holdings Ltd (HKG:0700)

Candy Crush Heads To China

As with most mobile and free-to-play games the popularity of Candy Crush Saga has begun to dwindle. Any game that utilizes social connections is likely to see a quick spiral into ignominy, but King has a plan: launching in China will provide a revenue stream while it seeks to develop new games.

Tencent, the company that will handle the Chinese version of the game, is the Asian version of Yahoo or Google. The company’s massive platform allows access to all sorts of services including free-to-play versions of FIFA and Call of Duty, which are unavailable in the United States.

The browser-based Candy Crush Saga has bee one of the most most popular free-to-play games to emerge in recent years. The business model of King Digital Entertainment PLC (NYSE:KING) involves the company waiting for players to buy optional powerups in order to make the game easier. That model brought the company to a comfortable $7 billion IPO, but the firm’s stock has underperformed in the months since.

King Stock Defies Easy Explanation

King Digital Entertainment PLC (NYSE:KING) was one of the most interesting IPOs of 2014, and the company’s stock has been very interesting to observe in the subsequent months. Despite being in one of the hot industries, stock in the company is trading at just four times earnings. That means that little expectation is priced into the company’s shares.

Perhaps investors have lost confidence in gaming companies, and particularly those that rely on the sale of virtual items for revenue. Traditional video games makers tend to trade at higher multiples, but their growth record is not impressive, even as the medium has become more and more popular. Companies like King who make their revenue from a single product, and have nothing to fall back on, are now viewed with scepticism.

There’s a good reason for the change in mood. After its IPO Zynga decided to spend a huge amount of money on new games development. High costs and no success led to a massive reduction in the company’s value and a loss of confidence in the industry. Moving into China is a simple band-aid for King Digital Entertainment PLC (NYSE:KING) woes.

King needs to show its investors that it isn’t a simple one-trick pony. The firm needs to develop another successful game or, barring that, it needs to manufacture success in an industry that has resisted long term victory. Until it does so shares are likely to trade at a tiny multiple.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

 
 

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