Turlip sees a very rocky future, and so far, he’s right. On Tuesday, KING stock was priced at $22.50 for its IPO, and it’s noticeably down during its first two days of trading.
So, point to Turlip.
But he’s still dead wrong about it being another Zynga. Here’s why:
#1: KING Stock Vs. ZNGA: Research and Development
In the three years leading up to the Zynga IPO in December 2011, ZNGA spent $213 million in research and development to move revenue from $19 million in 2008 to $597 million in 2010.
King? It spent $152 million to boost revenue from $64 million in 2011 to $1.9 billion in 2013. (Also note that King began its climb in 2011 at nearly breakeven compared to ZNGAs $23 million loss from operations in 2008.) Ergo, King was clearly doing a much better job converting R&D into revenue prior to its IPO.
Turlip could argue that King has underspent on R&D, hence why it’s now facing a one-and-done business model. However, the corollary argument is that it’s done a far superior job converting basic R&D into a moneymaking enterprise. Should it come anywhere close in terms of R&D efficiency in future years, KING stock will hit $100 before you know it.
#2: KING Stock Vs. ZNGA: Daily Active Users
ZNGA had 54 million average daily active users (DAUs) when it went public in late 2011. King had 144 million average DAUs in February of this year — 167% more than ZNGA. While Candy Crush Saga accounted for 67% of this number, it has three other games — Pet Rescue Saga, Farm Heroes Saga and Papa Bear Saga — with more than 5 million DAUs each. Most notable is Farm Heroes Saga, which saw DAUs move from an average of 8 million at the end of December to 20 million in February.
As King’s business grew in the seven quarters leading up to its IPO, the company pushed the DAU needle from 11 million in Q2 2012 to 124 million at the end of Q4 2013. Meanwhile, ZNGA’s average DAUs were 67 million in Q1 2010 and 54 million in Q3 2011 just prior to its IPO.
So, while ZNGA users were flatlining leading into its IPO, King users were increasing exponentially.
The fact that Candy Crush was responsible for a good chunk of that growth shouldn’t affect your opinion of KING stock. After all, WD-40 (WDFC) is pretty much a one-trick pony, and its stock has achieved an annualized total return of 29% over the past five years — 11 percentage points higher than the S&P 500.