King's valuation has fallen by $1bn: is the tech bubble about to burst?

IPO WATCH: Perhaps listing in London would have been a better idea after all? Investors over here still seem confident...

by Emma Haslett
Last Updated: 13 Aug 2014

- From MT's April issue: How King.com made its millions

Not the best day at the office for King boss (and reformed management consultant) Ricardo Zacconi yesterday: shares in his mobile games developer, King, bombed on their first day of trading, falling from an opening price of $22.50 to $19, knocking nearly $1bn off its valuation. Less Candy, more Crushed.

The drop has caused speculation tech fever is starting to cool. 'Clearly there is a bubble in the valuation of many tech stocks, in particular gaming, social media and online retailers,' said Richard Holway from TechMarketView. 'I just hope that the overdue resumption of sanity in valuations will not affect the whole sector regardless.'

If Holway is right and the bubble is bursting, it'll be a nice confirmation of the bearish contingent’s views: many have warned for months that tech stocks are vastly overvalued (they also made their discontent with Mark 'Lex Luthor' Zuckerberg known yesterday: Facebook shares dropped 7% after it paid $1bn for mad-but-quite-exciting tech firm Oculus VR).

On the other hand, this could be King-specific. The company has been criticised for being a one-hit wonder: it may have more than 180 games, but Candy Crush accounted for three-quarters of its revenue last year. Investors are presumably heeding the lessons of Zynga, which floated in 2011 on the back of the popularity of its Farmville Facebook game. Since then, Facebook games have become a non-event and Zynga’s valuation has gone from $7bn at its IPO, to $12bn in early 2012, before falling to $4.2bn now.

Zacconi may also regret his decision to spurn London in favour of New York’s Nasdaq: it’s quite the thing for London companies to list abroad (veteran entrepreneur Dan Wagner told MT last year that LSE rules are ‘very superficial’ and that the UK isn’t a very conducive environment for listed technology firms).

Just Eat could do worse than keeping an eye on this one. The Danish fast food delivery website is due to become the first company to list on the London Stock Exchange’s high-growth segment at the beginning of April, valued at between £1.2bn and £1.47bn. Admittedly, it doesn’t bear that many similarities to King – but a share price at the top end of its range would represent a multiple of 104 times its £14.1m earnings last year. That’s a lot for a little company.

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