Borislav Tonev

King Digital Entertainment PLC (NYSE:KING) Hits Another 52-Week Low

by Borislav Tonev August 20, 2014

On August 12, King Digital Entertainment PLC (NYSE:KING, KING message board) disappointed Wall Street with their results for the second quarter of 2014. Earnings per share were pretty much in line with what analysts expected, but the revenues and bookings scored a quarter over quarter decline which prompted the company to revise its 2014 guidance. Predictably, analysts reacted and the ticker was downgraded by several equity research firms.

As a result, the stock plunged and incinerated almost a quarter of the market cap during the first day after the earnings announcement. Perhaps more worryingly, KING hasn't registered a green day ever since. Yesterday, it slipped by another 2.7%, hit a new 52-week low of $13.08, and finished the day at $13.15 (more than 40% below its IPO price).

Clearly, KING isn't the most appealing stock at the moment. The question is: “Is there anything to suggest that the company can turn things around?”.

KING hinted during the earnings conference call that Glu Mobile Inc. (NASDAQ:GLUU)'s hit app, Kim Kardashian: Hollywood, has been partially responsible for the revision of the full-year guidance. They apparently acknowledged that there's some fierce competition in the sector.

GLUU themselves had some problems when they released their Q2 results, but despite this, according to the Financial Times, industry experts have said that the company's strategy of tying mobile applications with celebrities is the right way to go. Casual gaming veterans, Zynga Inc (NASDAQ:ZNGA) are ready to agree. They recently announced that they have inked some deals with Tiger Woods and NFL Players Inc. which means that users will soon see some familiar faces on the screen.

KING, however, are having none of it. Riccardo Zacconi told the Financial Times that his company probably won't embark on that path because he is not particularly keen on paying royalties. Is this the right thing to do considering the competition's moves? The performance from the last few days shows that investors are not convinced.

Still, there is one thing that could potentially bring KING back into the spotlight and it's called China. It's no secret that the world's most populous country presents a huge opportunities and, not surprisingly, a couple of months ago they decided to launch Candy Crush there. If you want to get an idea of how colossal the market is, you should consider one thing: KING's partner in China is called Tencent Holdings and its user base is actually bigger than the entire population of the United States of America.

Potentially, that's a lot of hours spent in front of the screen and a lot of Chinese Yuan flowing towards KING's bank account. But will Candy Crush be as successful in The Middle Kingdom as it has been in the western world? We will just need to wait and see.

In the meantime, the questions around KING's future titles remain open. Mr. Zacconi admitted during the Q2 earnings call that not everything is going according to plan with the company's non-Candy Crush offerings. Unless they manage to do something about this, KING will always be perceived by investors as a one-hit wonder.

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