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Biggest Fear For King Digital Is Boom-Bust Scenario

posted 13 Mar 2014, 08:36 by Mpelembe Admin   [ updated 13 Mar 2014, 08:37 ]
Reuters Market Access  - ANCHOR:

We have another IPO that's going to be coming out and will no doubt get lots of attention, that's King Digital which makes Candy Crush Saga. So it looks like valuation is going to come in about $7.6 billion, that's 22 million shares being offered. Just on face value, are you comfortable with that kind of valuation?

CHRIS BAGGINI, SENIOR INVESTMENT MANAGER, TURNER INVESTMENT PARTNERS

It all depends on what we think the company is going to do going from here. Can they expand Candy Crush to being a mobile- a multiple game type of product where they can put out new releases from this one big popular game? So we'll be meeting with them next week and asking questions about sustainability on what they're trying to produce, and try to find out whether or not this is one genre or one of many genres that they can make incredible game in.

ANCHOR:

And when you talk about sustainability, will some of the questions also revolve around profitability, revenue growth? What kind of numbers or percentage do you need to see to feel comfortable on investing in a name like this?

CHRIS BAGGINI, SENIOR INVESTMENT MANAGER, TURNER INVESTMENT PARTNERS

Right. Well, when you talk about digital games, the biggest fear is that it say boom-bust scenario. The game will do very well for a couple of months and then fade and whether or not there'll be something to replace it. So that's where all the questions I think will lead. We'll start with the top line and then you have to figure out, okay, well, how much does it cost you to make these games? I think those are all things that are very fair game. There has not been a digital company that has produced a sustaining, winning strategy yet. Unfortunately for Zynga when they came out, they were really tied to the Facebook platform. And Facebook changed the rules of that engagement overtime and they didn't have a Plan B ready. So it'll be very interesting to see how that works from here. Interestingly, Zynga has changed their methodologies and they are actually now rebounding as far as credibility on the street. You've seen the stock do very well lately. They've got multiple products. They made an acquisition we think is actually quite good. In the case of King, we have to see what they have.


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