Candy Crush is getting licked on its way to Wall Street.
King Digital Entertainment, the London-based parent of red-hot mobile phone game Candy Crush Saga, said Tuesday it will raise $500 million in an initial public offering that could value it at between $5 billion and $10 billion.
The company has yet to reveal how many shares it will sell and at what price, but told potential investors that revenue grew more than 10 times last year to $1.8 billion — from $164 million in 2012.
Despite the yummy growth, King executives will have to battle investors’ sour memories of the IPO of game-maker Zynga — which has seen its shares plummet 45.8 percent since its 2011 public offering.
At the time, Zynga’s FarmVille and Words With Friends games were all the rage.
Potential investors fear King, which makes the bulk of its money from its addictive Candy Crush game, could follow in Zynga’s footsteps — right off the fickle mobile-gaming cliff.
“Candy’s IPO will get crushed like Zynga,” said Doug Kass, founder of investment shop Seabreeze Partners Management. “The games business is no different than the movie business,” Kass said. “One great hit doesn’t ensure that the next movie will be a hit.”
King has five games, but Candy Crush accounted for a whopping 78 percent of its fourth-quarter gross bookings, or the revenue it receives from selling virtual items like skill boosters, according to its regulatory filing.
King said it expect Candy Crush to represent a smaller percentage of total gross bookings, its main source of income, as it moves more of its games to mobile platforms.
Signs of a Candy Crush slowdown are already showing.
Revenues in the fourth quarter — when gamers, perhaps, were flocking to the next game fad, Floppy Bird — dropped to $601.7 million from $621.1 million, King said.
The company attributed the drop to “a decrease in Candy Crush Saga gross bookings.”
Also raising eyebrows were the $504 million in dividends the company said it paid to top executives, directors and lead shareholders since October.
“By paying out large dividends before the IPO, they are signaling that they do not have any high-return projects in which they would rather invest the money,” said John Coffee, a finance professor with Columbia University.
Potential investors should keep an eye on whether insiders also sell into the IPO, Coffee said. Large insider sales in conjunction with the dividends may suggest King’s execs see the IPO simply as a means to “take the money and run,” he said.
King’s CEO Riccardo Zacconi owns 10.4 percent of the company’s outstanding shares. Private-equity firm Apax is the largest shareholder, with a 48 percent stake and a director on the board.
King plans to list on the New York Stock Exchange under the ticker symbol “KING.”