IPO stocks are meant to be red hot. And ‘red hot’ is definitely a good description for this newly listed company, called Candy Crush. However, I call it ‘Red Hot’, not because you will make big money. I call it ‘Red Hot’ because it will burn you! You have been warned!
POOR BUSINESS MODEL
You see, there is very little depth in its business, and there is a narrow focus on its income source. This will surely lead it to its ultimate demise.
As a creator of the new fad in App games, companies have done well in garnering users to download and play. But the real commercial value behind these apps are the continued trend of new downloads for future income.
By having only 4% of your user base currently contributing to 95% of your revenue source, is to set up the business for failure in the near future.
App developers design as many applications as possible. They hope for just that 1 app to strike the jackpot, and make it big. But one has to remember that all sustainable business will need to have a usable and strong product to begin with. While it is true that Whatsapp was sold for billions, and Viber was sold for few hundred millions, there is a stark difference between the functions of these applications, as compared to the application games creator that we are talking about here in this article.
Users of Whatsapp and Viber return to these applications daily to send messages, pictures, videos and make calls. This is a form of communication. However gaming applications prey on the idle time that an individual has with them. It is difficult to capture the fleeting hearts of gamers for long.
A hip and fresher game will almost always usurp the current prime time standing that candy crush stands on. When this happens, the income generated from this gaming app will then also be expected to tumble!
HOW TO WIN IN THIS LOSING GAME
The only way to play this ‘losing game’, will be to get in at the very beginning. You must then sell your possession as soon as you hit a quick run on your holdings. Do bear in mind that if the official trade launch falls into a turnover bearish correction phase in the market (which is possible anytime!), then be ready for a point of no return! Investors will lose their appetite for such applications, just like how investors moved away from the dot.com companies in the late 90s.
In summary, this IPO is better off left untouched. Because while you ‘may’ make money during good times, don’t expect much value from this stock when it dips. Because when it does, it will be permanent. And this candy stock will leave you with a sour aftertaste.
Terence Tan is the Chief Investment Strategist of Giants Learning Technologies. He is the creator of the 1st and Only Income Investing Programme in Asia Pacific. He graduated from the University of Queensland in 2003 with a Bachelor of Commerce (Accounting & Finance) and was awarded the Deans Honors Roll.
Terence had accumulated vast Investment Management experience since graduating from university, and had since managed multiple accounts of funds averaging more than USD$500,000. During his tenure, he helped clients amass an average returns of 30% and higher. He has coached and trained DBS Bank in Singapore, and was appointed a lecturer in the Diploma in Wealth Management program with Entrepreneur Resource Centre in Singapore as well.
An elite sportsman, he is also a 6-times Sea Games Gold medallist in the victorious Singapore Waterpolo Team.
He has more than 10 years of trading experience in relation to stocks and 5 years with stock options, futures, commodities, and forex. There are few other trainers who are as well versed as he is, in terms of financial instruments trading knowledge.
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