Mighty Kingdom (ASX:MKL) share price falls on ASX entrance

The Mighty Kingdom Ltd (ASX: MKL) share price has deflated on its first day of trading on the ASX. We take a closer look at the company.

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published April 21, 2021 2:36 pm AEST

Mighty Kingdom Ltd (ASX: MKL) shares jumped 10% to 33 cents per share upon listing on the ASX this morning. However, the momentum quickly reversed, sending the shares downward.

At the time of writing, the Mighty Kingdom share price is down 6.67% to 28 cents. Based on the number of quoted securities, the company holds an indicative market capitalisation of around $42.5 million.

Graph showing a fall in share price. — Image source: Getty Images

Background

Mighty Kingdom is Australia's largest independent game developer. The company came into existence in 2010 with a small team of creatives headed by managing director Philip Mayes. Since then, the team has expanded to 103 developers.

Over its 11-year history, Mighty Kingdom has produced and released more than 50 games. Across the portfolio, the company has racked up over 50 million downloads. Titles include the Shopkins games, LEGO Friends: Heartlake Rush, Ava's Manor and Sugar Slam offered on Snap Inc's Snapchat.

The developer derives its revenue from a diversified business model. This means Mighty Kingdom makes money from a 'work for hire' basis, licensing third-party brands, and developing original intellectual property (IP) that is funded by third-party publishers. It does, however, have an interest in furthering its capability of self-publishing original IP.

Funds from the initial public offering (IPO) will certainly go towards these efforts, with the company tapping new investors for $18 million prior to listing.

Why is the Mighty Kingdom share price falling?

Despite the gaming sector offering huge growth prospects, investors are today selling off Mighty Kingdom shares. A snippet of information might have investors wary of the company on its ASX debut. It has a long history of losses and isn't promising that will change.

Based on the company's filings, revenue for the last three years has jostled between $2.14 million and $2.6 million. As you might have guessed, 103 employees don't come cheap and are the company's biggest expense. As such, Mighty Kingdom has been loss-making. In FY20, total comprehensive losses amounted to $3.59 million.

These numbers might have investors second-guessing whether the Mighty Kingdom share price stacks up.

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