Borislav Tonev

King Digital Entertainment PLC (NYSE:KING) Slashes a Fifth in Extended Trading

by Borislav Tonev August 13, 2014

Candy Crush declined more than we had expected” and “our non-Candy Crush games did not grow as much as we had expected”. These two statements were made by Riccardo Zacconi, King Digital Entertainment PLC (NYSE:KING, KING message board)'s CEO during a conference call yesterday and we reckon that they illustrate the game maker's second quarter pretty well.

Immediately after the initial public offering in March, doubts started popping up around Candy Crush's developer and its future. Many people were not sure if KING can remain stable once the hype around the match-three time killer subsides and they were afraid of what some investors refer to as “the Zynga Inc (NASDAQ:ZNGA) syndrome”.

KING tried to clear all doubts by releasing some new games. All in all, the number of App Store and Google Play titles owned by the company grew from four at the end of last year to seven. Analysts saw that and after some positive coverage, the stock managed to regain some of the lost ground and it even reached its IPO price in July. If yesterday's after-hours action is anything to go by, climbing back to $22.50 will be a tall order for KING.

The company announced its Q2 results shortly before the closing bell and the figures revealed some disturbing trends. KING booked a profit of around $165 million ($0.59 per share) which was pretty much in line with analysts' expectations, but the revenues fell short of Wall Street's estimates. The company recorded $593 million in sales whereas the experts predicted between $609 million and $611 million.

As you can see from the first paragraph even KING themselves are surprised by the figures. They were forced to revise their Q3 and 2014 guidance and it's fair to say that they don't expect much over the coming months. They now say that annual booking should stand at between $2.25 billion and $2.35 billion at the end of the year while back in May, they were expecting between $2.55 billion and $2.65 billion.

Needless to say, investors weren't happy with what they saw and during extended trading, KING lost more than 20% of its value. But can it recover?

The company did announce a $150 million dividend which is an attempt (we're about to find out how successful it will be) to keep the shareholders happy. They also said that they have acquired a Singapore-based game developer called Nonstop Games which should expand the company beyond the realms of casual gaming. Unfortunately, estimating how successful KING's new endeavors will be is really hard at the moment.

There is one, guaranteed way to send the stock flying: coming up with the next Candy Crush. Sadly, it's easier said than done.

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