King Digital Entertainment Plc, maker of hit mobile phone game "Candy Crush Saga," expects to be worth up to $7.6 billion when it goes public this month, looking to take advantage of strong demand for technology investments.
IPOs by technology companies have been highly popular in the United States and analysts say that despite King's reliance on a handful of games, its IPO would be well-received due to the popularity of its games and the conservative pricing.
Twitter Inc's successful IPO in November and a surge in Facebook Inc's shares have fueled speculation that other tech firms could go public, including music-sharing service Spotify, lodging website AirBnB and mobile payments company Square.
Dublin-based King said on Wednesday it expected to price its initial public offering of 22.2 million shares at between $21 and $24 per share. At the top of this range, the company would be valued at about $7.6 billion.
"I think the bankers have priced the deal in a way so that initial investors can realize a first-day pop in the stock," said Josef Schuster, founder of IPOX Schuster, a Chicago-based IPO research and investment house.
However, Schuster and other analysts questioned if King could maintain its breakneck growth rate and avoid the fate of other game makers such as Zynga Inc and Rovio, whose fortunes have mostly relied on one game.
"Candy Crush," launched in November 2012, involves moving candies to make a line of three in the same color. It was the most downloaded free app and top revenue-grossing app in 2013.
Founder and CEO Riccardo Zacconi, who has led the company since it started in Sweden in 2003, will have a 9.5 percent stake following the IPO.
"I think the valuation of a P/E ratio of 13 for a high-growth company is indeed reflecting a skepticism about the ability to continue growing at such a rapid pace," said Jay Ritter, a professor and IPO expert at the University of Florida.
"The ability to come up with future games and get people to pay for the game is a big question mark."
King's revenue has grown to $602 million in the fourth quarter of 2013 from $22 million in the first quarter of 2012.
The company offers 180 games through mobile phones, Facebook and its own website.
But much of its growth has been fueled by "Candy Crush," which brings in about three-quarters of its revenue.
The game has been downloaded more than 500 million times since its launch in 2012. The basic games are free, but players must pay for add-ons or extra "lives".
King has launched other games, particularly on mobile phones, as it looks to avoid the fate of other game makers.
Zynga's stock price has halved since its IPO in 2011 as the popularity of "Farmville" waned, while Finland's Rovio has struggled to replicate the success of "Angry Birds".
To be sure, King's revenue for the quarter ended December 31 declined 3 percent from the preceding quarter, which the company said was due to a fall in "Candy Crush" gross bookings.
However, bookings rose for its other games, with 73 percent of total bookings coming from mobile users.
King's five games for mobiles have drawn a "substantial fan base" Zacconi said in a filing with the U.S. Securities and Exchange Commission. (r.reuters.com/bar57v).
"The opportunity in front of us is exciting: mobile usage is exploding and games are commanding the lion's share of time spent."
King's IPO is scheduled to be priced on March 25, two underwriters told Reuters. The stock will start trading on the New York Stock Exchange under the symbol "KING" on March 26.
The company will sell 15.5 million shares in the offering, while stockholders, including Apax Ventures, will sell 6.7 million shares, King said.
Unlike most other tech companies that have gone public recently, King is profitable, has no debt and generated positive cash flow from operations for each of the last nine years. It posted profit before tax of $714.3 million in 2013.
In February, an average of 144 million daily active users played the company's games more than 1.4 billion times per day.
At the top-end of the planned range, the IPO will raise as much as $532.8 million, slightly more than the $500 million placeholder figure it disclosed in its first public filing in February.
Entities related to Apax will own 44.2 percent of the company following the offering, according to the IPO filing.
JP Morgan, Credit Suisse and BofA Merrill Lynch are lead underwriters for the offering.