Bloomberg News

King Digital Drops 13% as Revenue From Candy Crush Shrinks (1)

May 07, 2014

King Digital Entertainment Plc (KING:US), the game company that relies on Candy Crush Saga for most of its revenue, slumped 13 percent after saying sales of its signature title shrunk last quarter.

King’s announcement underscores the challenge it faces in avoiding the decline that hit Zynga Inc., which relied too much on its FarmVille game for revenue.

Candy Crush, in which gamers have to clear levels of different colored candies, accounted for 67 percent of sales in the first quarter, down from 78 percent in the previous period, the Dublin-based company said today in a statement. The number of customers paying for virtual items also fell, King said.

The stock (KING:US) fell 13 percent to $16.25 at the close in New York, and has now tumbled 28 percent since its initial public offering in March, when it raised $500 million.

King is trying develop a wider assortment of games and is preparing to release new titles this summer.

“They are making up the declines with their other games, which, in my opinion, makes them a stronger and more valuable company. Apparently, the market disagrees,” Michael Pachter, an analyst at Wedbush Securities in Los Angeles, said today in an e-mail. He has an outperform rating on the shares, the equivalent of a buy.

Farm Heroes

King generates revenue when users purchase virtual items, such as extra lives or additional game content, to help complete levels. Its applications can be used on devices running Apple Inc., Google Inc. (GOOG:US) and Amazon.com Inc. software, and are available on computers through Facebook Inc.

The company attracted more gamers for products such as Farm Heroes Saga in the quarter. Total monthly unique users increased to 352 million from 101 million a year earlier.

While Candy Crush bookings fell, “we remain optimistic on Candy Crush’s staying power as additional content is introduced and the game expands into more international markets,” Doug Anmuth, an analyst with JPMorgan Chase & Co., wrote today in a research note. He has a buy rating on the shares.

In April, King said it will introduce a Chinese version of Candy Crush in partnership with Tencent Holdings Ltd.

Profit in the first quarter totaled 61 cents a share, excluding items, the company said today. That compared with the 57-cent average of 12 analysts’ estimates (KING:US) compiled by Bloomberg. Sales rose to $606.7 million, beating the $593.6 million average estimate.

“The market continues to be concerned about the overall percentage of revenues that Candy Crush accounts for and its decline becoming increasingly dramatic,” Edward Williams, an analyst at BMO Capital Markets, said today in an interview. His rating on the shares is the equivalent of a buy.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net James Callan, Ben Livesey


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Companies Mentioned

  • KING
    (King Digital Entertainment Plc)
    • $13.66 USD
    • -0.08
    • -0.59%
  • GOOG
    (Google Inc)
    • $589.27 USD
    • 4.50
    • 0.76%
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