The shares of King Digital Entertainment PLC (NYSE:KING) are down in excess of 11% after the company posted weak second quarter financial results. The gaming company reported revenues of $490.0 million over earnings of $0.49 per share for the quarter, matching Wall Street’s expectations. However, the revenue was down by 18% on a year-over-year basis, while the adjusted earnings per share declined by 17%. One of the primary reasons for the decline is the sliding popularity of its number-one game Candy Crush Saga, which accounted for 40% of its gross bookings. The game that single-handedly turned the tables for King Digital Entertainment PLC (NYSE:KING) after its launch on mobile and tablets in 2012, saw gross bookings in the second quarter drop by 13% year-over-year to $529 million.
The shares of King Digital Entertainment PLC (NYSE:KING) are down by 12.6% year-to-date and are trading at $13.50 as of the reporting period. Smart money seems to have had an inkling of the coming slowdown as at the end of the first quarter $338.92 million in shares was held by 28 hedge funds tracked by Insider Monkey, down from investments of $426.71 million at the end of December. The shares of King Digital Entertainment PLC (NYSE:KING) were up by 2.36% in the first quarter, indicating that hedge funds slashed their holdings quite dramatically. Alyeska Investment Group, led by Anand Parekh, reported a position in King Digital Entertainment PLC (NYSE:KING) at the end of the second quarter of 1.71 million shares valued at $24.34 million. Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, was another firm reporting a position in the company as of that date, of 626,456 shares worth $8.93 million.
We don’t just track the latest moves of funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 123%, which is more than 65 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Riccardo Zacconi, CEO of King Digital Entertainment PLC (NYSE:KING), said about the results, “Our second quarter 2015 gross bookings exceeded the high end of our guidance range and for the third consecutive quarter, Candy Crush Saga, Candy Crush Soda Saga and Farm Heroes Saga ranked within the top 10 grossing games in the Apple App Store and Google Play Store in the U.S.” He further discussed the latest game launched by the company, adding, “We are also pleased to have recently launched Paradise Bay, our first resource management game, and Scrubby Dubby Saga, our first game with a slider mechanic, and look forward to introducing these fresh games to our massive player base and to players around the globe.”
The company is pushing towards other games, trying to match the success it had with Candy Crush Saga. Paradise Bay was launched last week and involves taking players to a tropical destination and letting them build their resources. While discussing the game, Lou Fasulo, Studio Head at King Digital Entertainment PLC (NYSE:KING), added, “It’s a new type of game for King which offers immersive and strategic gameplay, allowing players to build their own trading port, uncover the mysteries of their island and interact with an array of fun and friendly characters. Paradise Bay offers players the ultimate escape.”
It is important to consider that King Digital Entertainment PLC (NYSE:KING) reported a decline in its revenue during the first quarter as well, with its revenue dropping by 6% year-over-year. Further, its monthly unique users (MUUs) for the second quarter were down to 340 million, a drop in excess of 1% from the previous quarter.
Considering the sequential drop in the revenue of King Digital Entertainment PLC (NYSE:KING), and the increasingly competitive mobile games landscape, we do not recommend a long position in the stock at the moment.
Disclosure: None
