Candy Crush IPO Puts These ETFs in Focus - ETF News And Commentary
Thanks to the popularity of the blockbuster game "Candy Crush Saga” across the globe, the maker of the game – King Digital Entertainment – plans to go public by the end of this month. The company will likely price its IPO between $21 and $24 per share. At the high end of the price range, King is expected to raise $533 million and will be valued at $7.6 billion.
Candy Crush Maker in Focus
King's revenue jumped sharply to nearly $1.8 billion in 2013 from $164 million in 2012 thanks to Candy Crush, which was the most downloaded free app on iPhone and iPad in 2013 and has crushed Facebook (NASDAQ: FB), Google (NASDAQ: GOOG) Maps and YouTube in popularity (read: Facebook to Buy WhatsApp, 3 ETFs to Watch).
King Digital is largely dependent on Candy Crush Saga for its revenues with 78% of fourth quarter 2013 total revenue coming from the game. Further, Candy Crush has 97 million in average daily users as of February.
Other two games – Farm Heroes Saga and Pet Rescue Saga – are not as popular as Candy Crush but still have respectively 20 million and 15 million in daily users. The dependence raises major concern on the company's growth story, as it might be difficult for the maker of Candy Crush to sustain the momentum for long.
This is especially true when we think of Zynga (NASDAQ: ZNGA), which was once a profitable company due to its successful “ville” series game. Now, the company is struggling to translate this hit game to mobile devices and is incurring losses. Zynga is performing poorly and is currently trading at 42% below its IPO price.
However, King will likely benefit from continued growth in the mobile usage and mobile gaming. In addition, the booming U.S. IPO market and the surging stock prices for many new listings would provide a boost to this new comer. The shares of the newly debuted digital coupon provider, Coupons.com (NYSE: COUP), doubled in their first day of trading from its IPO price. Further, Twitter's (NYSE: TWTR) successful IPO in November and rising FB shares have spread optimism into the broad IPO space.
King Digital is expected to make its debut on the New York Stock Exchange under the symbol ‘KING' on March 26 following the final offering on March 25 (read: 2 Rising ETFs With Double-Digit Yields).
ETFs in Focus
With the hype created on the first public appearance of Candy Crush, the following ETFs are seeing busy trading and will continue to do so in the weeks ahead. Though the following ETFs have not yet disclosed holding King's stock in their roster, any of these could be worthwhile for investors seeking to take advantage of the listing:
Global X Social Media Index ETF (SOCL)
This ETF offers pure play in the global social media space by tracking the Solactive Social Media Index. Holding 27 securities in its basket, FB, Tencent Holdings (TCEHY) and Linkedin (NYSE: LNKD) occupy the top three positions in the basket with a combined 11% share (see: all the Technology ETFs here).
In terms of country exposure, U.S. firms take half of the portfolio, closely followed by China and Japan with double-digit exposure each. SOCL has so far amassed $165.7 million in its asset base. The ETF charges 0.65% in fees and expenses and sees good volumes of roughly 226,000 shares a day.
Similar to Facebook and Twitter IPOs, King Digital is expected to be included in SOCL holdings at the close of the fifth trading session following the IPO. The ETF currently has a Zacks ETF Rank of 2 or ‘Buy' rating with a ‘High' risk outlook.
First Trust US IPO Index Fund (FPX)
This ETF targets the U.S. IPO market and follows the IPOX-100 U.S. Index. It has accumulated $519.1 million in AUM and charges 60 bps in fees a year. Volume is good as it exchanges more than 143,000 shares in hand on average.
In total, the fund holds 100 securities in its basket with the largest allocation going to Facebook, AbbVie (NYSE: ABBV) and General Motors (NYSE: GM) that collectively make up for about 26% share. The product has a nice mix of sectors, with the top four being consumer discretionary, information technology, energy and healthcare.
Since the ETF focuses on 100 largest and most liquid U.S. IPOs, new companies can find entry into the fund's holding after trading for a minimum of 100 days (read: Can IPO ETFs Remain Hot in 2014?).
Renaissance IPO ETF (IPO)
This new fund also provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a ‘fast entry basis' on the fifth day of trading. The fund holds 61 stocks and has attracted $25.4 million in AUM since its debut five months ago.
Currently, FB and Zoetis (NYSE: ZTS) are the top two firms making up for nearly 10% share each. From a sector look, technology stocks make up for more than one-fourth share while financials, oil & gas and healthcare take the next three spots. The ETF trades in light volume of less than 44,000 shares, probably ensuring additional cost beyond the expense ratio of 0.60%.
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