This doesn't have to end badly if investors price the shares appropriately during the IPO process. Not all revenue is alike and investors will apply a higher m

This doesn't have to end badly if investors price the shares appropriately during the IPO process. Not all revenue is alike and investors will apply a higher multiple when revenue is sustainable. I see substantial risk in much of King's revenue primarily because there isn't enough track record to know if it is repeatable and if their sources of customer acquisition will continue in a profitable way. A good comp company would be Zynga (ZNGA) who rose to ~$1.3b in revenue in 2012 and fell 33% to the $870m range in 2013 and they now claim revenue has stabilized. In Zynga's case, I'd say much of their revenue was also indefensible yet they managed to hold on to much of it despite Facebook cutting off Zynga's traffic. Zynga is currently valued at $4.2b or $2.9b in enterprise value when you deduct out the asset value on the balance sheet. That means Zynga trades at around 3.5x gross revenue which is similar to Supercell's recent valuation in their sale to GungHo. Investors in Zynga made the mistake of assuming that Zynga's revenue would continue its meteoric rise and priced it ahead of its actual revenue. Therefore, in King's case, a 3.5x revenue multiple on its 2013 trailing revenue might not be appropriate given that they already saw revenue decline in Q4 2013 sequentially. I'd therefore say that 33% (possibly as much as 50%) is at risk in King's revenue so applying a very conservative 50% discount to their top-line would put it in the $1b range, and then apply a 3.5x multiple on top of that and King would be worth $3.5b in my book today. Given that I'm an investor and would expect a return on my money, and also that a lot of retail investors were burned with the Zynga IPO, investors might want a 10-20% discount on this price to ensure that it outperforms the market. Relevant sources: http://recode.net/2014/02/18/here-comes-the-candy-crush-ipo-after-a-1-9-billion-year-king-gets-ready-to-go-public/ http://recode.net/2014/02/18/here-comes-the-candy-crush-ipo-... https://www.google.com/finance?q=NASDAQ%3AZNGA https://www.google.com/finance?q=NASDAQ%3AZNGA http://mitchlasky.biz/ea-and-the-future/ http://mitchlasky.biz/ea-and-the-future/ http://mitchlasky.biz/should-venture-capital-fund-games-companies/ http://mitchlasky.biz/should-venture-capital-fund-games-comp...