Swedish game publisher and developer King was poised to become the biggest video game IPO since Zynga. Although the company never publicly confirmed it was going public, King had begun the process behind-the-scenes with a confidential SEC filing. But the IPO has reportedly been put on hold – for now. What went wrong

“Most probably, King’s bankers have been sounding out interest amongst institutional investors for King stock in the last month or so,” said Thijs Hagoort, co-founder and CFO of video game research firm Newzoo. “I expect that the feedback investors gave did not match the value expectations of the company, rumored to be $5 billion. As large amounts of cash keep flowing into the company thanks to a profit margin above 50 percent, shareholders will be reluctant to settle for a lower valuation of the company, and they clearly don’t need to IPO to fund growth.”

According to Wanda Meloni, president of video game research firm M2 Research, what King seems to be saying is that they are delaying the IPO, not that they are cancelling it altogether. They brought in their new CFO, Hope Corcoran back in September. Corcoran previously helped Clearwire raise over $11 billion in funding.

“It might have been more about timing than anything else,” said Meloni. “It is hard to say when they might try again. It depends on market conditions. From an industry perspective, we really need to have the next IPO hit it out of the park. So there is a lot of pressure to do it right. Additionally, the financial markets seem to be a little tenuous at the moment, so they may also be waiting for investment confidence to increase.”

A King spokesperson said, “while there continues to be lots of speculation about what our plans may or may not be, we’ve not commented and won’t be commenting on that speculation.”

King’s flagship game Candy Crush is now bringing in over $1 million dollar a day (even after paying Apple and Google 30 percent). The game’s recent launch on Kakao opens up yet another revenue platform for the puzzle game. Hagoort forecasts that King will generate revenues of around $500 million this year and could well be heading towards $1 billion dollar revenues in the future. The rumored $5 billion IPO value would mean about 10 times 2013 revenues.

“Valuing such a company is very hard: exceptional growth and strong profits margins on the one hand, and a short track record and the perceived risk of being a one-hit wonder on the other,” said Peter Warman, president of Newzoo. “Evidently, Zynga’s performance has not helped in this respect and we believe that the number 1 question institutional investors will be asking is ‘How can I be sure this is not another Zynga ’”

Meloni believes King, which has been around for 10 years, is not another Zynga. She added that for the video game industry at large, Zynga’s problems have had a serious ripple effect for other companies.

“Zynga’s issues have been more about their bloated expansion strategies through acquisition, which generally doesn’t provide long-term growth stability,” said Meloni. “When it came time to cut costs, Zynga had to cut redundancies through headcount and studio closures. Ultimately, it left people feeling very skittish about games and entertainment content as a viable investment strategy.”

Hagoort also said there could be completely different explanations for what went on behind closed doors.

“King mayhave found a new large pre-IPO investor, limiting the appeal of an IPO this year, similar to what happened with Facebook in 2009 when Digital Sky Technologies bought a stake,” said Hagoort. “Or perhaps management has become less enthusiastic about a U.S. public listing once they fully became aware about all the hassles it brings in terms of regulatory compliance.”

King has risen to the top of the competitive global casual games market using a simple formula. The company uses its website, King.com, as an incubator where over 150 free game demos are played by consumers around the world. Top games are chosen based on analytics and data and fine-tuned for full-on Facebook gameplay. From there, successful games expand to mobile devices, offering a connected experience that allows players to log in and continue a game across PCs, tablets and smartphones.

“We have a good audience of King fans on our website and as we launch games onto it, we are able to quickly gauge which games are proving most popular,” said Tommy Palm, Games Guru at King. “From there we can evaluate how the added social elements of developing the game for Facebook and for mobile platforms will enhance our players’ experience with the game.”

The formula works. King gets over 1 billion gameplays daily, which is up from 9 billion gameplays per month back in February. It’s most popular game, Candy Crush Saga, has been downloaded over 500 million times since April 2012. Over 150 billion Candy Crush Saga games have been played across Facebook and mobile devices, as consumers ride a virtual sugar high matching three or more candies in progressively more challenging levels. According to AppData, Candy Crush Saga has over 100 million monthly active players, and King reports that one in every 23 Facebook users worldwide is a fan of Candy Crush Saga. The game has even spawned merchandising through four flavors of Candy Crush Candies, which are now sold around the world.

“Candy Crush currently holds the number one grossing position in about two thirds of every country on the planet, iOS and Google Play alike,” said Warman. “On iOS and GooglePlay the game has grossed around $300 million to date. Currently, players worldwide spend about $1.3 million per day playing the never-ending puzzle. The game continues to engage people on Facebook and guides them to the mobile version. To put this success in perspective: Kings’ Candy Crush grosses more money in the U.S. alone than all of Zynga’s mobile titles put together on a global scale.”

It’s these types of numbers, coupled with the strong performances of other titles like Bubble Witch Saga and Pet Rescue Saga (each of which attracts over 10 million monthly plays on Facebook according to AppData); that recently steered the private company toward an IPO.

“What I like about King is that they have been around for 10 years, they are not a start-up,” said Meloni. “They have systematically shifted with the industry. They have also hired Hope Cochran as their new CFO, which for me is an extremely impressive move.

Investors who are hesitant to pull the trigger on another casual games company after the Zynga IPO debacle shouldn’t expect a repeat with King. According to Jesse Divnich, vice president of Insights with EEDAR, where King has succeeded and where Zynga initially failed is the reliance on letting data drive game design.

“Zynga had an over reliance on data, which has arguably been remedied over the years,” said Divnich. “But they let it drive game design far too much. This ultimately hindered innovation.

With King, they still make a great deal of revenue from games that are derivatives of others in the market, but I get the sense that they quickly identify when they have a big market potential on their hand or when they have truly created something innovative the masses will love. King knows when to pull the marketing trigger. The quantity of games they release may seem like they lack a methodical process, but they certainly take a methodical and caring approach before they put their marketing muscle behind a title.”

Ricardo Zacconi, CEO and co-founder of King, said there has been a major shift in how users not only play games, but actually consumes digital content. According to Newzoo, smartphone and tablet gaming will account for 27.8 percent of all gaming revenue by 2016, bringing in over $23.8 billion. That’s a compound annual growth rate (CAGR) of 19 percent for smartphones and 48 percent for tablets. Investment bank Digi-Capital forecasts that global mobile app revenues will reach $70 billion by 2016 (up from $15 billion in 2012) with games currently accounting for 70 percent of worldwide app revenues (up from 40 percent  in 2010).

“Key variables that will define what (app) content will be consumed is how much time you have and what kind of device and screen size you have,” said Zacconi. “Our games are perfectly suited for bite-sized entertainment, since you can play one level of Candy Crush Saga or Bubble Witch Saga in three minutes with one hand.”

Meloni said King has continued to succeed in the overcrowded casual Facebook and mobile game markets because they remain in tune with its customers, maintaining a very loyal fan base for its games with little churn, unlike Zynga. King has shelved games that they didn’t think would do well. Back in June King abandoned in-game advertising because so much of its revenue was coming from micro-transactions and the ads were taking away from the player experience.

King has also successfully targeted both male and female gamers. Female gamers make up half of all gamers today. And the publisher continues to release new games like Papa Pear Saga and Pepper Panic Saga, while expanding their established games. Warman said the success of Pet Rescue Saga, which launched this year and is making over $400,000 a day, proves that Candy Crush Saga is not a one-hit wonder. Now it’s up for investors to feel the same way.