Does King need to be rescued?

Less than six months after its float, King shares still sit below their IPO price.

King Digital Entertainment logo
Source: Bloomberg

On Tuesday 12 August, King Digital Entertainment will be posting its second-quarter figures and the market is anticipating adjusted earnings per share to have dropped from $0.61 in the first-quarter, down to $0.59. This is expected to be on the back of sales only fractionally lower at $606.33 million with a pre-tax profit of $242.20 million.

King is the UK-based but US-quoted interactive entertainment company, best known for its hugely successful game Candy Crush. It was on the back of this game’s success that the company obtained its quote on the NYSE, as it raised $500 million from the sale of 22.2 million shares which valued the company at just over $7 billion.  

The biggest fear that the markets had was that Candy Crush, King's primary success, was going to be a one-hit wonder. When you consider that 80% of the company’s revenue was derived from this one game during 2013, it’s clear there was a large dependency. A look across at Zynga and the difficulties it has faced in trying to replicate the success of its game Farmville, offers an all-too-graphic reminder that previous success is no guarantee for the future. The success of both Pet Rescue and Farm Heroes has helped three of the companies’ games remain in the top-ten grossing games of all the major platforms.

Having been only quoted for five months it is difficult to glean too much from the charts, although the $22.50 IPO price will end up being a physiological barrier that the shares will need to clear. 

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