Will King IPO be Another Zynga - The UpStream

Since social gaming company King replaced Zynga in the top spot for social gaming usage, King has decided that this would be a great time for it to begin its initial public offering (IPO) process. The company has hired some banks to begin the process, meaning we could see their IPO as early as the end of this year.

While it may seem like a good idea to the company to take advantage of the publicity to try and succeed in the public market, I have a prediction that this will be another Zynga. There are, obviously, a number of similarities between the companies. The fact that they are both social/mobile developers is certainly a good starting point. There is only so much money available in the free-to-play with micro-transaction ecosystem, and that number is a lot smaller today because of EA's brilliant decisions.

Another reason for my belief is this quote from Wedbush analyst Michael Pachter ,

My guess is that the IPO will be small, probably only 10 to 20 percent of the outstanding stock. That means supply will be small, and demand might be pretty big, so I doubt that the IPO will be disappointing.

In my experience, if Pachter says it will succeed, it is destined to fail. This is the guy who claimed going into E3 that there was ABSOLUTELY NO WAY we could possibly see EA talk about any Star Wars titles, despite the fact that several were nearing completion when Disney transferred the development rights to EA. Clearly not a man with his ear to the ground.

Jesse Divinch, VP of EEDAR, seems to have a more realistic view of the world.

But just because Zynga couldn't sustain its ecosystem, that shouldn't be entirely applicable to King. But it certainly provides a history lesson for King and for us all. Certainly, though, King can capitalize on its existing user base for a good three years with little effort.

Long-term, it will come down to game quality and whether King can grow or even sustain their current success. Anytime your revenue is attached to a large casual user base - even if they are addicted to your games - you should be concerned about how to maintain loyalty overtime.

Incredibly cautious optimism is a good way to look at this. King does not seem to be plagued by the poor management and bad business decisions, such as Facebook exclusivity in a rising mobile market, that Zynga was going into their IPO. My prediction is that King will do better than Zynga did, but not by a huge amount. Luckily they aren't following in Groupon or Facebook's shadow, both being bigger failures than Zynga.