The game maker King Digital Entertainment scored a huge hit with Candy Crush Saga. Now the company will test how strongly public investors believe that it can find a new success story.
The game maker priced its offering at $22.50 a share on Tuesday, the midpoint of its projected price range. At that price, the company has raised $500 million, valuing it at more than $7 billion in one of the biggest initial public offerings so far this year. It will begin trading on the New York Stock Exchange on Wednesday under the ticker symbol KING.
It will remain to be seen if investors are convinced that King can come up with new hits — and continued revenue and profits — to back up that huge valuation.
But the company’s much-anticipated offering comes during the continued hot streak of the I.P.O. market.
Companies have seized on buoyant stock markets and eager stock buyers, raising $31.2 billion in proceeds to date. That is up nearly 70 percent from the same time last year, according to data from Renaissance Capital.
Much of potential buyers’ attention has revolved around fast-growing digital companies like Twitter, whose initial stock sale raised $1.8 billion. Others already attracting potential investors include Box, an online storage provider for corporations, and the Alibaba Group, the Chinese online commerce giant.
Drawing almost as much attention is King, an 11-year-old multinational company that has posted huge growth thanks to its one monster hit, Candy Crush. A version of a classic “match three” game in which players line up three or more same-color candies, the title became a global cultural phenomenon. Nearly 100 million users play Candy Crush every day, drawn, in part, by a seemingly endless supply of new levels and features. Its success has overshadowed King’s other titles, including Farm Heroes Saga and Pet Rescue Saga.
King relies on a so-called freemium model: Its games are largely free to play, but additional content or virtual goodies cost money. Most players of freemium games never buy anything. The small percentage who do, however, spend a lot.
Candy Crush’s addictive qualities have led to enormous profits for the company. Its earnings jumped 7,000 percent from the same time a year ago, to nearly $568 million.
And the game has propelled King from a relatively unheralded Swedish company into a global phenomenon, with offices in Stockholm, London and San Francisco.
Other game makers have benefited from freemium models, too. Supercell, a Finnish company that makes the popular Clash of Clans, reported a nearly 100-fold jump in pretax income last year. In October, it took an investment from the Japanese telecommunications company SoftBank that valued it at $3 billion.
But monster hits fade over time. Angry Birds, the once-inescapable smash hit, has fallen in popularity, though it remains the 19th most downloaded paid game on Apple’s iTunes app store.
Candy Crush seems to be no exception to the trend. Its gross bookings, a nonstandard measure of how much users pay for virtual items and other goodies, fell in the fourth quarter last year.
Other King titles are proving popular, but their level of success appears to be much smaller. Farm Heroes Saga, which was developed in the company’s London studios, currently ranks fourth on the iTunes app store’s top-grossing games. But it draws 20 million active users each day, a fifth of what Candy Crush does.
“Companies like King are reliant on hits,” said Mark Little, an analyst at the technology consultant Ovum in London. “It’s an open question whether they can sustain their success.”
King hopes to avoid the fate of Zynga, the company behind the FarmVille and Words With Friends franchises. After making a splashy market debut in 2011, Zynga has struggled to stay relevant, prompting a painful restructuring that included bringing in a new chief executive.
Its shares closed at $4.84 on Tuesday, less than half of its I.P.O. price. That values Zynga at $4.2 billion, well below its European rival.
King has already avoided some of its Zynga’s problems. It keenly focuses on mobile devices while still encouraging users to link their Facebook accounts to the games as a way to keep players engaged.
Mindful of investor skepticism, King and its advisers deliberately sought a conservative valuation, especially compared to serial hitmakers like Electronic Arts and Activision Blizzard, according to people briefed on the matter.
Yet the company itself has emphasized that it is not going public because it needs money. In the I.P.O. prospectus, King’s chief executive, Riccardo Zacconi, noted that the game maker had substantial cash flow and no debt.
Instead, the offering will give the company stock that it can use to make acquisitions and let investors cash out their holdings.
Those backers are still in for a potentially big payday. The investment firm Apax Partners stands to reap about $76.5 million from the sale of some of its holdings — more than double the $35 million it originally invested in the game maker nine years ago.
Apax will still retain a roughly 44 percent stake after the I.P.O., which will be worth about $3.2 billion.
And Mr. Zacconi will own a nearly 10 percent stake that is now valued at $675 million.
JPMorgan Chase, Credit Suisse and Bank of America Merrill Lynch are leading King’s offering.