Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this entire prospectus carefully, especially “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision.Overview
We are a leading interactive entertainment company for the mobile world. Our mission is to provide highly engaging content to our audience to match their mobile lifestyles: anywhere, anytime and on any device. In December 2013, an average of 128 million daily active users played our games more than 1.2 billion times per day. In the fourth quarter of 2013, 73% of our gross bookings were derived from our mobile audience. Our leading games include Candy Crush Saga, Pet Rescue Saga, Farm Heroes Saga, Papa Pear Saga and Bubble Witch Saga. We believe Candy Crush Saga, our top title to date, is one of the largest interactive entertainment franchises of all time.
Our focus is to provide a highly engaging, differentiated entertainment experience where the combination of challenge and progress drives a sense of achievement. We make our games available for free, while players can purchase virtual items priced relative to the entertainment value they provide. We embed social features in our content that enhance the player experience. We build on a unique and passionate company culture predicated on collaboration, humility and respect. We believe all of these in combination have made our content a core part of our audience’s daily entertainment.
We have been a leading developer and publisher of casual games on digital platforms since 2003. Casual games typically include a puzzle element, are easy to learn but hard to master, can be played in a few minutes and are suitable for play on a wide range of devices. They have enjoyed broad appeal since they were first offered in a digital format in the 1980s.
Casual gaming is large and growing quickly, driven by key technology and consumer trends, creating the potential for leading entertainment franchises to emerge from the category. The proliferation of mobile devices is dramatically expanding the global gaming audience, much of which is attracted to casual titles. Social connectivity has become a pervasive feature of interactive entertainment, transforming the scale and economics of the industry through viral content distribution. Lastly, free-to-play business models have vastly increased the revenue potential of the category by eliminating upfront barriers and facilitating streams of small payments throughout the game journey.
We believe we have a repeatable and scalable game development process that is unparalleled in our industry. In the last decade, we have developed a catalog of more than 180 game IPs, which we continuously expand. We refer to our game IP as the intellectual property assets that includes its name, game play mechanic, visual expression, graphics and design. We introduce new game IPs in a tournament format on our royalgames.com website, where we are able to gather rapid feedback from a subset of our sophisticated, highly engaged player base, which we refer to as VIPs. We adapt the most popular game IPs to our proven Saga format for launch on mobile and Facebook. We believe this approach has allowed us to develop games faster, at lower risk and at lower cost than our competitors. The result has been category-leading franchises including Candy Crush Saga, Pet Rescue Saga and Farm Heroes Saga.
We believe the inherently social nature of our games, our data-driven marketing processes, our cross-platform technology infrastructure and massive player network are key competitive advantages. We obtain the vast majority of our installs organically or through viral channels that are driven by the effectiveness of our social features. We seed these channels by leveraging our significant capabilities in paid player acquisition. We run thousands of discrete campaigns every 24 hours, each with individual target metrics, and all subject to the same target return parameters. As of December 31, 2013, we had a massive network of 324 million monthly unique users and a track record of long-term retention driven by game longevity and our proven ability to cross-promote new games to our audience.
We have put the long-term retention of our players at the heart of our business model. While our players are able to enjoy our games for free, we generate revenue by selling virtual items to a subset of players who wish to enhance their entertainment experience. Our approach is to make our pricing transparent and consistent throughout the game journey. Following these principles, we have gathered a wide base of approximately 12 million average monthly unique payers, representing approximately 4% of our monthly unique users as of December 31, 2013. We believe that targeting a modest share of our customer’s entertainment spend drives game longevity and customer loyalty, and is the most effective way of building a sustainable business over the long term.
We have built our business to significant scale with limited capital investment and disciplined business management. We have raised only $9 million of primary capital to date and we have generated positive cash flow from operations for each of the last nine years. We have generated significant growth as our game portfolio, player network and mobile footprint have scaled. From the first quarter of 2012 to the fourth quarter of 2013, our gross bookings by quarter grew from $29 million to $632 million. Our revenue, the most directly comparable IFRS measure, grew from $22 million in the first quarter of 2012 to $602 million in the fourth quarter of 2013. Our profit (loss) also grew from $(1) million in the first quarter of 2012 to $159 million in the fourth quarter of 2013. For a description of how we calculate gross bookings and the limitations of this non-GAAP and non-IFRS financial measure, see “Selected Consolidated Financial Data—Non-GAAP Financial Measures.”
Our Mission and Vision
Our mission is to provide highly engaging content to our audience to match their mobile lifestyles: anywhere, anytime and on any device. Our players always come first. We believe this approach is the most effective way of creating lasting value for our stakeholders.
Our vision is to build the leading entertainment company for a mobile world. We aim to deliver our games to a vast and socially-connected audience retained over the long term.
Our Heritage Is the Foundation of Our Success
We have been a leading developer and publisher of casual games on digital platforms since 2003. Over the last decade, we have acquired deep experience in casual game design and have built a massive network of loyal and dedicated players. We have operated a free-to-play business model as well as used social features to drive player engagement and retention. Lastly, we have built a technology infrastructure capable of managing very high volumes of gameplays. These assets, capabilities and business processes have been the foundation of our mobile and social success to date and we believe, position us uniquely to capture the current market opportunity.
Industry Background and Our Opportunity
The digital entertainment industry is currently undergoing dramatic change driven by significant technology and consumer trends, including the rapid growth of mobile platforms, social networks as part of the entertainment fabric, and app stores as key distribution and payment gateways.
These trends are having a significant impact on the digital gaming industry: the size of the global gaming audience is increasing dramatically, free-to-play models have vastly expanded the revenue opportunity and sophisticated targeting strategies have made acquisition of large player populations economically viable in a sustainable way. These developments together are driving disproportionate growth in casual gaming relative to the broader gaming industry. We believe this creates an opportunity to establish leading entertainment franchises in this category:
sub-genres were pioneered in Japan in the 1980s and have spawned historical global franchises such as Space Invaders, Pac-Man and Tetris.
Our Value Proposition for Players
To address this opportunity, we have designed our mobile and social games with the following characteristics:
Our Core Strengths
We have developed a repeatable and scalable process for bringing successful mobile and social titles to a global audience quickly and cost effectively, while minimizing business risk. We believe our model is fundamentally differentiated from competitors, will be challenging to replicate and strengthens our ability to deliver business predictability and sustainability.
Game Design Capabilities, IP Catalog and Laboratory
Over the last decade, we have developed a proprietary catalog of more than 180 game IPs which we offer in a tournament format on royalgames.com. Developing a new game IP has typically taken a team of three people 20 weeks, and we have created game IPs in most casual sub-genres over the years. On royalgames.com, we first release new game IPs to a subset of sophisticated, highly experienced players, who we call VIPs. We have found that the underlying game mechanic of a game that is popular with VIPs is highly likely to be successful when adapted for mobile and social platforms.
Unique, Repeatable, Scalable Game Development Process
We have a standardized process to adapt our popular casual game IPs into a proven game format for launch on mobile and social platforms. Our first game format, the Saga, is a game development framework designed to provide a deep, viral and social game experience. It comprises a path through hundreds of game levels, social features that allow interactions with others, viral mechanics and a variety of virtual items available for purchase. Popular new features developed in one game studio are productized and added to the development platform for use by all game studios.
Cross-platform Architecture Enhances Player Experience and Economics
Our unique cross-platform architecture allows our audience to play wherever they are: on Apple’s iOS, Google’s Android or Amazon’s Kindle mobile devices, or on their desktop on Facebook. It also allows players to switch seamlessly between devices and platforms and continue their game wherever they left off. Cross-platform gameplay has been widely adopted by our audience and has driven increased engagement, cross-platform virality and retention. Our architecture provides a shared user database, analytical platform and network marketing infrastructure, so that our Saga games share a substantial majority of common server-side code. This has allowed us to scale organically from one to six game studios in 24 months while preserving a low risk, low cost, high speed development and service platform.
Efficient Engine to Drive Acquisition, Engagement and Retention
Our model for player acquisition is primarily viral and organic, supplemented by a data-centric, rules-based approach to marketing. The inherently social nature of our games drives virality. This virality is enhanced by our cross-platform synchronization. We enjoy a virtuous cycle where players that play our games on various platforms and devices share their enjoyment and progress with their friends who in turn then discover our games. In addition, a large number of players discover our games through organic channels. This results in attracting large numbers of players for whom there is no direct marketing expense. We also make large investments in paid player acquisition, where returns are boosted by the viral impact. We have built extensive proprietary capabilities and technology infrastructure, which allow us to run acquisition campaigns in a highly granular and data-driven way. Every 24 hours, we operate thousands of campaigns targeting hundreds of discrete clusters through a mix of channels and formats across multiple platforms, all subject to the same target return parameters.
Massive Player Network and Loyal Customer Base
As of December 31, 2013, we have amassed a network of 324 million monthly unique users and our players enjoyed over 41 billion gameplays in the month of December 2013. We have a track record of successfully attracting our audience to new games and retaining them within our network. To drive retention and cross-promotion, we use a data-centric, rules-based approach aimed at maximizing aggregate return on investment (ROI) regardless of content, channel or advertising format. Out of this audience, we have built a wide base of approximately 12 million monthly unique payers, representing approximately 4% of our monthly unique users as of December 31, 2013.
Our Business Model
We believe that targeting a modest share of the entertainment spend of a wide base of customers is a source of game longevity and customer loyalty, and the most effective way of building a sustainable business over the long term.
Our Approach
The overarching goal of our business model is to foster long-term player retention within our network. As a result, we have developed, and continue to enhance, our model on the basis of the following principles: we focus on retention, our audience can enjoy our games for free, and our pricing is transparent and consistent throughout the game journey.
Our Virtual Items
We offer a range of virtual items to our customers. These currently include entertainment time, where players can extend the duration of their game session; skill enhancements, where players can buy a wide variety of boosters that help them to progress; and access to content, where players can pay to unlock new episodes.
Our Key Metrics
Our key financial metrics, which include gross bookings, revenue and adjusted EBITDA, and our key operating metrics, which include daily active users (DAUs), monthly active users (MAUs) and monthly unique payers (MUPs) have grown significantly in the last two years. We believe this trend is a result of our ability to profitably grow, retain and monetize our massive player network and loyal customer base. For a description of how we calculate each of these metrics and factors that have caused fluctuations in these metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics.”
The charts below highlight our key metrics:
Gross bookings and adjusted EBITDA are not calculated in accordance with IFRS. For a description of how we calculate gross bookings and adjusted EBITDA, the limitations of these financial measures and a reconciliation of these financial measures, see “Selected Consolidated Financial Data—Non-GAAP Financial Measures.”
Key Strategies
Our key strategies are:
Summary of Risk Factors
Our business is subject to numerous risks described in “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these risks include:
Our Corporate Information and Structure
We were originally incorporated as Midasplayer.com Limited in September 2002, a company organized under the laws of England and Wales. In December 2006, we established Midasplayer International Holding Company Limited, a limited liability company organized under the laws of Malta, which became the holding company of Midasplayer.com Limited and our other wholly-owned subsidiaries. The status of Midasplayer International Holding Company Limited changed to a public limited liability company in November 2013 and its name changed to Midasplayer International Holding Company p.l.c. Prior to completion of this offering, King Digital Entertainment plc, a company incorporated under the laws of Ireland and created for the purpose of facilitating the public offering contemplated hereby, will become our current holding company by way of a share-for-share exchange in which the existing shareholders of Midasplayer International Holding Company p.l.c. will exchange their shares in Midasplayer International Holding Company p.l.c. for shares having substantially the same rights in King Digital Entertainment plc. See “Corporate Structure.” Upon the exchange, the historical consolidated financial statements of Midasplayer International Holding Company p.l.c. included in this prospectus will become the historical consolidated financial statements of King Digital Entertainment plc. Our registered office is located at Fitzwilton House, Wilton Place, Dublin 2, Ireland and our telephone number is +44 (0) 20 3451 5464.
Our website address is www.king.com. Information contained on, or accessible through, our website is not a part of this prospectus. The King logo, “King,” “king.com,” “royalgames.com,” “Candy Crush Saga,” “Pet Rescue Saga,” “Farm Heroes Saga,” “Papa Pear Saga,” “Bubble Witch Saga” and other game titles, trademarks or service marks of ours appearing in this prospectus are our property. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders.
The Offering
The number of ordinary shares to be outstanding after this offering is based on 119,845,933 ordinary shares outstanding as of December 31, 2013 and excludes:
Except as otherwise indicated, the information in this prospectus reflects and assumes:
Summary Consolidated Financial Data
The following tables summarize certain consolidated financial and other data for our business. You should read the following summary consolidated financial data in conjunction with “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
We have historically conducted our business through Midasplayer International Holding Company p.l.c. (formerly Midasplayer International Holding Company Limited) and its subsidiaries and, therefore, our historical financial statements present the results of operations of Midasplayer International Holding Company p.l.c. Prior to completion of this offering, King Digital Entertainment plc, a company incorporated under the laws of Ireland and created for the purpose of facilitating the public offering contemplated hereby, will become our current holding company by way of a share-for-share exchange in which, the existing shareholders of Midasplayer International Holding Company p.l.c. will exchange their shares in Midasplayer International Holding Company p.l.c. for shares having substantially the same rights in King Digital Entertainment plc, which will have nominal assets and liabilities prior to the share-for-share exchange and will not have conducted any operations prior to the completion of this offering. Upon the exchange, the historical consolidated financial statements of Midasplayer International Holding Company p.l.c. included in this prospectus will become the historical consolidated financial statements of King Digital Entertainment plc. Upon the completion of this offering, the corporate reorganization will be reflected retroactively in King Digital Entertainment plc’s earnings (loss) per share calculations. See “Corporate Structure.”
The consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and the consolidated statement of financial position data as of December 31, 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our historical results are not necessarily indicative of the results that should be expected in any future period.
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The following consolidated financial position data as of December 31, 2013 is presented:
Non-GAAP Financial Measures
For more information about gross bookings, adjusted revenue, adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures that are not prepared in accordance with IFRS, see “Selected Consolidated Financial Data—Non-GAAP Financial Measures.”
Exchange Rate Information
Certain information contained in this prospectus is expressed in euro, such as the nominal value of our ordinary shares, share option exercise prices and transactions values in “Related Party Transactions,” among others. The exchange rate between the U.S. dollar and the euro as of December 31, 2011, December 31, 2012, and December 31, 2013 was $1.2939, $1.3215, and $1.3767 respectively, per €1.00 according to the exchange rate according to the European Central Bank and OANDA Corporation.
Presentation of Financial Information
We report under IFRS as issued by the IASB. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States (GAAP). We have historically conducted our business through Midasplayer International Holding Company p.l.c. (formerly Midasplayer International Holding Company Limited) and its subsidiaries, and therefore our historical financial statements present the results of operations of Midasplayer International Holding Company p.l.c. Prior to the completion of this offering, we will engage in a corporate reorganization and share-for-share exchange as described in “Corporate Structure” pursuant to which Midasplayer International Holding Company p.l.c. will become a wholly-owned subsidiary of King Digital Entertainment plc, a newly formed holding company. Following the corporate reorganization and the completion of this offering, our financial statements will present the results of operations of King Digital Entertainment plc and its consolidated subsidiaries.