Were King's Q2 Results A Repeat Of Zynga?

King Digital Entertainment PLCKING
is getting crushed like candy after reporting earnings this afternoon. The "Candy Crush Saga" producer reported a Q2 EPS of $0.38 versus the Street estimate of $0.43. 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 8 percent as of 5:20 p.m. EST. This is actually a bit steeper than the
2 percent declineZynga IncZNGA
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."

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.

Posted In: Candy Crush SagaKingRob EnderleSean UdallZyngaAnalyst ColorEarningsNewsAnalyst RatingsTech

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