King Digital Entertainment PLC, best known for Candy Crush Saga, has released more details about its upcoming IPO, setting a price range of $21 – $24 on 22 million shares (underwriters will have the option to buy an additional 3 million shares). King estimates that it earn $326 million from the IPO (using $22.5 for its estimate), and with 315 million shares outstanding the $24 maximum price would set the company’s valuation at $7.6 billion.

Unlike many companies in the mobile space, King Digital is at least profitable. The company has had positive operating cash flow for the last nine years, revenues have grown from $22 million to $602 million from the beginning of 2012 to the end of 2013, and the company has gone from a $1 million loss to $159 million in profits over the same period. King Digital has 324 million monthly active users, 144 million daily active users, and 12 million unique monthly payers on average.

King Digital

King Digital faces same risks as Zynga did in 2011

Investors looking at King Digital will be quickly reminded of Zynga Inc (NASDAQ:ZNGA). Both companies have leaned on the revenues from one major hit with a few smaller titles bringing in decent revenue, and a huge portfolio of games that never connected with players. Zynga has Farmville, Farmville 2, and Zynga Poker; King Digital has Candy Crush Saga (78% of gross bookings), Farm Heroes Saga, and Pet Rescue (all three make up 95% of gross bookings).

King Digital’s development model is to first launch a new game online to its ‘VIPs’ in a tournament format to see which is the most popular and then continue developing that title until it is ready to become one of its ‘Saga’ titles. The inclusion of a devoted player base makes sense, but it’s still no guarantee that King Digital will make another hit.

King already showing signs of weakness

Also, it’s hard not to notice that revenues, gross bookings, and profits were all down last quarter. If people are getting tired of Candy Crush Saga and nothing comes to takes its place, King Digital investors watch the stock price steadily decline as the new game of the week pulls people away from the games they’ve already gotten tired of. Despite a recent bout of bullishness, that’s exactly what happened with Zynga Inc (NASDAQ:ZNGA). It is possible for gaming companies to reliably produce hits (Activision Blizzard, Inc. (NASDAQ:ATVI) is responsible for Diablo, World of Warcraft, Starcraft, and Hearthstone among others), but judging King Digital on a single mega hit is risky.