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Were King's Q2 Results A Repeat Of Zynga?

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Were King's Q2 Results A Repeat Of Zynga?
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King Digital Entertainment PLC (NYSE: KING) is getting crushed like candy after reporting earnings this afternoon.

The "Candy Crush Saga" producer reported a Q2 non-GAAP EPS of $0.49 versus the Street estimate of $0.43. The GAAP earnings figure was $0.38 per share. Sales arrived at $490 million versus $490.03.

"Boy that's bad," Rob Enderle, principal analyst at Enderle Group, told Benzinga. "That means not only did they not set the market up for the results, but expenses drifted way off of revenues."

Shares of King fell sharply in after-hours trading, dropping by as much as 8.55 percent. The stock was down more than 12 percent as of 7:09 a.m. EST. This is actually a steeper than the 2 percent decline Zynga Inc (NASDAQ: ZNGA) endured last week.

Enderle said that CEOs don't get many moments like this, which could present a problem for King's chief executive, Riccardo Zacconi.

"The thing is, it shouldn't be a surprise," Enderle added. "The explanation should have been provided before the results so the market anticipated the costs. This looks like a flip in management and that's never good. There's really nothing good there. They're going to have to wade through that."

Editor's note: Rob Enderle's comments were made in reaction to King Digital 's GAAP EPS of $0.38, not its non-GAAP EPS of $0.49.

Related Link: Zynga Needs 'Fresh Blood,' Not Former CEO Mark Pincus

King Vs. Zynga

Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga that he favors King over Zynga.

"King is sort of a cash flow story," Udall explained. "They're not really growing but they're very profitable, which is very unusual. A brand-new IPO, typically a brand-new software IPO, is [typically] in a growth phase."

Udall said that King generates "a lot of sales" and "a lot of bookings," allowing the firm to "generate a lot of cash flow" even if its EPS falls short of expectations.

"But they're not a growth story," he said. "So I guess the risk here is that they become like a Zynga."

'An Ugly Business'

Enderle said that this is "an ugly business to get into when most of what you're doing is copying someone else," referring to King and Zynga.

"If the market moves because you're one step back, you're probably not going to see it in time and get left behind," said Enderle. "It also means you spend most of your time figuring out who to copy, so you really don't have control of your destiny. It's more like you're managing on luck."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Latest Ratings for KING

DateFirmActionFromTo
Nov 2015Morgan StanleyDowngradesOverweightEqual-Weight
Nov 2015Stifel NicolausDowngradesBuyHold
Nov 2015WedbushDowngradesOutperformNeutral

View More Analyst Ratings for KING
View the Latest Analyst Ratings

Posted-In: Candy Crush Saga KingAnalyst Color Earnings News Exclusives Analyst Ratings Tech Best of Benzinga

 

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