Candy Crushed: Barclays Downgrades King Digital

King Digital KING reported second quarter results, which included an earnings miss and poor guidance.

The maker of the popular Candy Crush app earned $0.59 per share, falling short of the $0.60 analysts were expecting. While revenue rose 30.3 percent year over year to $593.56 million, total bookings declined by five percent from last quarter to $611.1 million. Candy Crush made up 59 percent of bookings, down from 67 percent in the previous quarter.

King Digital expects its third quarter bookings to be in a range of $500 million to $525 million, below analyst expectations of $614.2 million. For the full fiscal year, bookings are expected to be in a range of $2.25 billion to $2.35 billion, also below analyst expectations of $2.47 billion.

Barclays: “Decay hastens”

Barclays analyst Christopher Merwin downgraded shares of King Digital to Equal-weight from Overweight with a price target lowered by 33 percent to $16.00.

“Fears about title concentration risk for King Digital came to pass in the second quarter print when gross bookings missed our estimate by five percent,” Merwin wrote in a note to clients. He adds that King Digital's new guidance is “now achievable” but further decay in core franchises in 2015 is a concern.

Merwin estimates that Candy Crush saw its quarterly decline in bookings accelerate to -16 percent from -13 percent in the previous quarter. The analyst further speculates that based on management's third quarter booking guidance for the non-Candy Crush titles in the portfolio remain flat, management's new total bookings guidance implies Candy Crush bookings will decline 27 percent.

“We therefore believe management's new third quarter guidance is likely attainable,” the analyst adds, noting that the bar is set “very low.”

While expectations are now set lower for the remainder of 2014, Merwin also questions what is in store for 2015.

“Management has said that they plan to better space out title launches and content updates for existing franchise, though it remains unclear to us if that will indeed stem the day for key franchise,” Merwin wrote. As a result, the analyst has now lowered his 2015 bookings growth forecast to just two percent from a previous 17 percent.

Shares of King Digital hit new all-time lows on Wednesday morning at $13.65. Shares rebounded slightly to $14.09, down 22.6 percent from Tuesday's close.