Kabam Weighs IPO as Game Maker Expands Beyond Facebook

Kabam Weighs 2013 IPO as Game Developer Expands Beyond Facebook
Kevin Chou, CEO of Kabam Inc., at the company's office in Redwood City, California. Kabam has raised a total of $125 million from investors including the venture arms of Google and Intel Corp. Photographer: Noah Berger/Bloomberg

Kabam Inc., the maker of Facebook Inc. games such as “Kingdoms of Camelot,” may hold an initial public offering as soon as next year as it tries to avoid rival developer Zynga Inc.’s over-dependence on the social network.

“An IPO is a great outcome for a sustainable, attractive, growing business,” Chief Executive Officer Kevin Chou said in an interview, adding that the company is considering holding a share sale in 2013 or 2014.

San Francisco-based Kabam, co-founded by Chou in 2006, has taken a different path than Zynga -- which mostly relies on Facebook to draw participants -- by targeting hard-core gamers and building an audience of users through other channels.

Concerns by investors over Zynga’s reliance on Facebook, which accounts for about 80 percent of bookings, or the total value of goods sold in its games, have helped to drive a 69 percent share drop since its December IPO through yesterday.

A version of “Kingdoms of Camelot” built for Apple Inc.’s iPhone, released in March, is the fourth highest-grossing game in the App Store and will help Kabam increase revenue about 50 percent to more than $150 million this year, Chou said.

Unlike Zynga, which targets casual players, Kabam builds expansive, graphically rich titles to lure enthusiasts. While such games may be more costly to produce, hard-core gamers tend to pay more money for virtual goods, said Atul Bagga, analyst at Lazard Capital Markets LLC.

“These are gamers who are willing to spend money,” said Bagga, who estimates that hard-core games make about 20 cents to 30 cents per daily user, compared with about five cents to six cents for Zynga’s games. “This is their passion; this is their love.”

Multiple Platforms

By contrast, Facebook makes up just 25 percent of Kabam’s sales of virtual goods. It also generates money from the iPhone and Google Inc.’s Android phones, as well as other gaming sites such as Steam, Kongregate and Kabam.com, its own games portal, Chou said. He hopes to expand into even more sites and devices, such as Amazon.com Inc.’s Kindle Fire, to increase its base of potential users in preparation for an IPO.

“As a new public company, you want some part of your growth story to be ahead of you,” Chou said.

While Kabam has competed with Kixeye Inc. and other developers who specialize in hardcore games on the Web, it may soon face off against Zynga itself. The San Francisco-based social game maker on Monday announced it acquired A Bit Lucky Inc. to add a new category of “mid-core” games to its portfolio. The company paid between $20 million and $25 million for A Bit Lucky, two people with knowledge of the matter said.

Growth Spurt

Kabam has raised a total of $125 million from investors including the venture arms of Google and Intel Corp., Pinnacle Ventures Inc., and Canaan Partners, the venture firm where Chou previously worked as an investment analyst. The last round of funding, in May 2011, valued the company at about $500 million, two people said at the time.

The startup has grown to more than 500 employees from 35 in March of 2010. Most moved into a new office in San Francisco’s SoMa district this month. The 600,000-square foot (57,000 square meters) building was recently vacated by another potential IPO candidate: Twitter Inc.

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