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Why It's Best To Stay On The Sidelines At King Digital

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In a report published Friday, JP Morgan analyst Doug Anmuth downgraded the rating on King Digital Entertainment PLC (NYSE: KING) from Overweight to Neutral, while lowering the price target from $20 to $17, following the Q2 results, which point towards weaker-than-expected network metric, while the upcoming launch of the company's key pipeline product has been pushed to 2016.

The network was weight down in 1H15 by new mobile game launch gaps, decline in the desktop business from Facebook Inc (NASDAQ: FB), along with quarter on quarter declines in MAUs and MUUs in 2Q15.

Related Link: Were King's Q2 Results A Repeat Of Zynga?

"With AlphaBetty Saga possibly already peaked & monetizing at a lower rate, and midcore pushed to '16, we believe much falls on Paradise Bay in 2H15," Anmuth stated, while adding, "We are optimistic on the new resource mgmt. game, and also believe that 2H guidance is likely conservative, but we still think the risk profile is elevated & the stock may set up better for 2016."

With regard to the Q2 results, King Digital reported its bookings and EBITDA ahead of the estimates. However, daily active users decline 10 percent, quarter on quarter.

On the positive side, bookings and EBITDA were strong, driven by a lower-than-anticipated decline in "Candy Crush Saga" bookings. The company ended the quarter with cash worth $2.5/share, following share buybacks worth $15 million during Q2.

On the other hand, the analyst expressed concern regarding the weak guidance for Q3, which implies an 11 percent quarter-on-quarter decline in gross bookings. According to the JP Morgan report, there is also a lack of visibility "into new game titles and delaying launch of mid-core title into 2016."

Latest Ratings for KING

DateFirmActionFromTo
Nov 2015DowngradesOverweightEqual-Weight
Nov 2015DowngradesOutperformMarket Perform
Nov 2015DowngradesOutperformNeutral

View More Analyst Ratings for KING
View the Latest Analyst Ratings

Posted-In: JP MorganAnalyst Color Downgrades Price Target Analyst Ratings

 

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