You’ve likely seen news regarding 2 tech IPO’s this week.
Yesterday morning, I added a new stock to the list of tech stocks that I follow. King Digital Entertainment (KING, Financial) turned public. You might have never heard about this company. In fact, it is a gaming company that has published “Candycrush Saga”, perhaps the most popular mobile game these days.
King Highlights
Fast growing revenues:
2011: 63.9M
2012: 164.4M
2013: 1.9B
2014E: 2.5B
EPS also looks good:
2011: -0.005
2012: 0.03
2013: 1.86
2014E: 2.44
The Bad News
Of course, it seems impossible to not compare KING with Zynga which also had an incredibly successful game (FarmVille) but was never able to follow it up despite many different attempts:
In both cases, the company has one hit game, with revenues based mostly on virtual goods purchases by users.
When you look at competitors such as Blizzard, it’s difficult to not consider King’s significant risk when CandyCrush does eventually lose some of its popularity.
I often talk about “lock-in” as a significant factor in evaluating the future value of a company and I just don’t see anything that gives me confidence in KING’s “next big” games.
Would I buy KING? I doubt it. There is certainly a chance that the stock is cheap but I’ll have to see strong evidence that it can sustain success in its future games. I’m willing to risk losing out on an opportunity.
Looks like I’m not alone here…just look at its first day of trading:
Online Storage Market = Bad Business
On the surface, Box and Dropbox are two incredibly promising companies. They are both involved in the online storage business which is seeing very strong growth. Box already has 25 million users and 225,000 businesses using its services.
One great thing about this business is the fact that its a booming industry and customer retention is high.
The Bad News
The less optimistic view of course is the competition. Box can probably do well competing with pure storage competitors such as Dropbox and Evernote. Its problem is when trying to compete with Amazon, Google Drive, Microsoft OneDrive, etc. These are huge players that have an “ecosystem strategy”. They don’t need to make much profit on storage because it’s mostly about integration with everything else that they do. Some even argue that they are willing to lose money on storage for several years in the hopes of gaining a solid customer base. Not only will that make it challenging for pure storage plays but it will also drive margins to the ground.
Already Losing Money
Revenues
2011: 21,084
2012: 62,173 (13 months)
2013: 124,192
Net Profit
2011: -50271
2012: -117,690
2013: -168,557
So the company is quickly increasing revenues but losses are also exploding and it’s actually losing more money than it has in revenues…
Red Flags All Over The Place
Once again, I find it difficult to get excited about Box’s IPO. The same will likely be the case when Dropbox comes out. Since the pricing is not out yet, I can’t say how expensive or not BOX will end up being but there does seem to be a lot more talk about potential that what I personally expect so I doubt I’ll be a buyer on either one. Time will tell though.
