Digital gaming operator Midasplayer — also known as King.com, and developer of the wildly popular Candy Crush Saga — reportedly is prepping for an IPO. According to the Wall Street Journal, it has retained JPMorgan Chase (JPM), Credit Suisse (CS) and Bank of America (BAC) to lead the transaction.
Founded in 2003, Midasplayer has been focused on creating “fun, bitesize entertainment experiences for everyone to enjoy.” That’s a spot-on approach for the mobile market, and has resulted in successful titles like Pet Rescue Saga, Bubble Witch Saga and Pyramid Solitaire Saga.
Of course, the mega-hit is Candy Crush Saga, a challenging matching game in which you pair up cool-looking candies and other items. Because of its difficulty and expansive 300 levels, players often make in-app purchases to keep themselves moving forward.
Midasplayer has been profitable since 2005, when the company raised $50 million from Apax Partners and Index Ventures. The company runs a fairly lean organization, sporting a headcount of about 700 compared to a hefty 2,500-plus for Zynga (ZNGA) — and this is after accounting for an 18% reduction of the workforce.
Despite all this, investors still might push back on a Midasplayer offering. The main reason: the fickleness of the gaming business.
Zynga is certainly an instructive case study. True, when it pulled off its IPO in late 2011, the prospects looked bright; the company was the clear leader in the fast-growing social gaming space. But that moment in time turned out to be the peak of its success. Now, Zynga’s stock is off a grueling 72% as the company has been wholly unable to consistently produce more hit titles.
Fairly or not, it’s unlikely investors will ignore this when considering Midasplayer, which could mute its valuation and promote even more trepidation around each earnings report. Every quarter, Wall Street will want darn good proof that the company’s capable of being more than just a one-hit wonder.
The founders of the company are no doubt aware of all this, but still … why not strike while the momentum is hot?
So while the deal might line founders’ pockets, it easily could wind up being another nightmare for public investors.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.