Will King Digital's $7.1 billion valuation last?

Mark Lennihan, AP

King Digital (KING), maker of hit social game Candy Crush, saw its IPO price at $22.50 a share. With 22.2 million shares being offered, that translates into roughly $344 million for the company and another $156 million for insiders and investors.

Before-hours trading sent shares to $28.50, an encouraging sign for investors. But that has fallen away as the stock dropped to $20 this morning, or more than 11 percent off.

King Digital has been mostly profitable for years, according to its SEC filings. Combined with strong growth and greater control over expenses and you have the sort of start that the market usually finds attractive.

There were other numbers that should have looked good. King's big title, Candy Crush, was the most frequently downloaded free app on iPhones and iPads in 2013, according to Apple. That represented more app downloads than Facebook, Google Maps, and YouTube.

Also bolstering its promising position, 73 percent of the company's bookings in the last quarter of 2013 came from mobile. That's important for tech investors, who keep an eye on the move toward mobile devices and online access.

But there was another number far less attractive: 78 percent of total gross bookings were due to Candy Crush Saga. Gross bookings are the "total amount paid by our users for virtual items and for access to skill tournaments," which translates into the company's main source of revenue from the small percentage of customers willing to pay to play. Throw in Pet Rescue Saga and Farm Heroes Saga and you reach 95 percent of total gross bookings from just three games, out of a total stable of 180 games.

Furthermore, King saw a revenue decline between its third and fourth quarters last year. Investors are likely wary because of the experience watching Zynga (ZNGA), maker of Farmville, which similarly has depended on a small percentage of customers for income and a small number of hits to reel in the dollars. Analysts looking at King's stock said that future growth depends on revenue diversification.

  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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