Candy Crush is destined to be a heart breaker. The addictive mobile app’s Europe-based maker, King Digital Entertainment, is ready to capitalize on the hype with an initial public offering in the United States. With its top hit Candy Crush Saga generating about 80 percent of revenue, though, investor infatuation would be a dangerous game.
The multilevel matching puzzle was the most downloaded game for smartphones and tablets last year, according to research firm App Annie. The popularity has pushed King Digital’s revenue to an eye-popping $1.9 billion with profit of about $570 million.
Faddish games are all the rage. Last October, an investment by  SoftBank of Japan valued the Finnish firm Supercell at $3 billion. Supercell said its top line clocked in at almost $900 million last year. On the same rough multiple of three, King would be worth nearly $6 billion, or only two-thirds as much as established video game producer Electronic Arts.
By contrast, Zynga’s experience hasn’t been so sweet. Its shares have tumbled by half since going public in 2009 after struggling to repeat the popularity of FarmVille. Instead, Zynga has unsuccessfully tried to buy its way to the next level, including a wasted $200 million on the creator of Draw Something, OMGPOP.
King Digital can at least point to some other modest successes. Pet Rescue Saga was a top 10 mobile game in Britain and France. The company has also introduced two other games in the last four months. Set against such excitement, however, are considerable risks.
Just 4 percent of gamers pay King Digital for extra goodies; the rest just put the apps on their devices for free. And despite an impressive 500 million downloads of Candy Crush, consumers are a fickle bunch. There is no brand loyalty or barrier to entry where mobile games are concerned.
There are already early signs of these problems at King Digital. Quarterly revenue slipped 3 percent and monthly users 7 percent from the previous period. That suggests the allure of Candy Crush may already be waning.
The app developer Rovio managed to turn its Angry Birds smash hit into a franchise that spawned a movie. Likewise, King Digital’s Candy and Saga patents could turn into fresh sources of revenue. To translate into any kind of success for investors, though, all the pieces will have to fall right into place
Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
