King shares fall on Candy Crush spending drop

Francisco

Shares in King Digital Entertainment fell more than 20 per cent to a new low after it cut its sales outlook for the year, due to a further drop in players’ spending on Candy Crush Saga.

Candy Crush has been one of the world’s most popular mobile games, making King a bellwether for the industry, but chief executive Riccardo Zacconi denied that its disappointing results reflected the end of the casual-gaming boom, citing the success of a rival title featuring Kim Kardashian.

A special dividend of $150m and a new agreement by King’s executives, founders and largest shareholder, Apax, to restrict their stock sales until the end of the year failed to buoy investor sentiment in the digital gaming firm.

Shares in King fell by more than 20 per cent to $14.50 in after-hours trading, having closed at $18.20 on Tuesday, already below March’s initial public offering price of $22.50.

“Candy Crush declined more than we had expected,” said Riccardo Zacconi, King’s chief executive, adding that newer games such as Farm Heroes and Bubble Witch 2 did not attract enough players to make up the difference. “We have seen a drop in monetisation across the portfolio.”

King blamed “external factors” for the 5 per cent drop in gross bookings (payments for in-game upgrades before fees to distribution partners) to $611m in the three months ending in June, compared with the previous quarter.

These included the distraction of the World Cup and growing competition from Glu Mobile’s popular Kim Kardashian: Hollywood game. Last month, Glu said it had made $1.6m in five days through in-app payments from its celebrity tie-in and some analysts estimate the game could generate $200m this year.

King’s total revenues increased 30 per cent in the second quarter over the prior year to $594m, with pre-tax profits up 39 per cent to $216m. King said it now expected gross bookings of $2.25-2.35bn for the full year.

King’s continuing profitability boosted cash and cash equivalents to more than $800m. Zacconi said the unusual decision to pay out a $150m special dividend so soon after it raised $500m in its IPO was a sign of confidence, but played down the suggestion that King might pay out a regular dividend any time soon.

Candy Crush’s popularity peaked in the third quarter of last year but the game still makes up more than half of King’s sales. While the number of people playing its games every month increased to 485m, the number of players paying for upgrades in a month fell 12 per cent on the first quarter of the year to 10.3m.

“We are not happy with the lower-than-expected gross revenue run rates we have been experiencing since the latter part of Q2,” Zacconi said. “We have a strong and expanding portfolio of games ... We have demonstrated our ability to consistently produce high quality games that capture the interest of both existing and new players.”

Zacconi said King planned to tackle the decline by pushing into new markets, such as China through a deal bringing Candy Crush to Tencent’s gaming platform, launching more frequent games and updates, and to diversify from casual titles into new kinds of games that generate greater spending. Earlier this month, it acquired Nonstop Games, based in Singapore, for up to $90m.

“We think that casual [gaming] is still under-exploited in terms of revenue potential,” he said. “We think that there is an opportunity to leverage the massive reach we have built, the biggest reach in the industry, to extend our portfolio to other genres.”

As King invests in new titles for launch later this year and into 2015, it increased its headcount from 808 at the end of the first quarter to 971 in June and will continue to recruit more talent.

As well as creating new franchises, King hopes to reinvigorate Candy Crush with a new sister title, Candy Crush Soda, which is currently being tested in some markets. The game will offer new challenges in a familiar world, Zacconi said. But King has no plans to build a celebrity like Ms Kardashian into its games. “The advantage of that is we don’t have to pay royalties for the game,” he said.

— Financial Times