King Digital's Candy Crush IPO: Can IT spending match growth?

Summary:King Digital said it will have to invest heavily in its network infrastructure to support its growth, but can it align its IT spending with revenue that isn't likely to surge at the same clip as 2013?

The initial public offering filing of the day comes from King Digital Entertainment, the company behind Candy Crush, and the revenue growth is staggering at $1.88 billion for 2013, up from $164.4 million in 2012. Scaling the technology to support King's rapid growth is going to be tricky.

Here's the problem: King said it will have to invest heavily in its network infrastructure to support its growth. After all, the company is hiring like mad, has to preserve uptime and has one data center in Sweden with a backup in the same country.

Scaling up its architecture is one thing. From an IT spending perspective, King's biggest issue is how it can scale down if Candy Crush can't carry the growth for 2014 and 2015.

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King Digital would be a prime candidate for cloud computing from outside providers, but the company plans to roll its own. King outlined its strategies for growth and one big one is "complete control of our technology stack from the King Cloud infrastructure to our game engines and marketing and analytics platforms."

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That plan is fine if you think the growth will continue. I don't. King Digital, which acknowledges its growth rates won't continue, seems in a better position than Zynga, but could easily overshoot on spending for growth. The company plans to expand to new platforms and geographies and grow its network---what game maker doesn't? Like other game companies, King relies on a small subset of gamers---4 percent of monthly unique users---to drive most of its revenue through virtual goods.

In other words, King will need to think about scaling down IT capacity as much as it is thinking about growth. 

On the IT front, King said the following:

We rely on our internal network infrastructure to manage our operations and to provide us with the data we need to analyze the performance of our business and to report our operational and financial performance accurately. With our recent growth, we have had to invest in expanding and enhancing our network systems and we plan to continue to invest in our network systems, which could involve additional purchases of computer hardware and software as well as the hiring of additional operations personnel. We may not be able to successfully install and implement any new computer hardware and software needed to enhance our operational systems and we may not be able to attract a sufficient number of additional qualified operations personnel. If we are unable to successfully expand and enhance our network infrastructure and operational systems, or experience difficulties in implementing such systems, our business could be harmed.

That risk factor is standard issue, but you could make the argument that King's growth is going to slow. Where do you aim that network investment?

Topics: CXO, Cloud, Data Centers, Networking

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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