King Gets Its Candy Crushed With Earnings – Poor Guidance

Jon C. Ogg
August 12, 2014

King Digital Entertainment plc (KING) was a hot social gaming company IPO, but now the company is giving back a large portion of its share price after the company's second quarter earnings report. Maybe the company's new top game is Crushed Candy.

If you just read the items in the release, things looked solid on the surface. The company generated $154 million in cash, $248 million of adjusted EBITDA, and claimed an EBITDA margin north of 40%. But then comes the dreaded confessional statement - reducing outlook for the full-year 2014.

This seems too soon to do, but King even announced a $150 million special dividend. Also, King's executive officers, directors, founders and affiliated funds which represent 80% of the cumulative outstanding shares have agreed to a new lockup through the date following the announcement of fourth quarter and full year 2014 earnings.

Adjusted earnings were $0.59 per share in the second quarter, as expected. Revenue was $593.6 million. Third quarter bookings are expected to decline sequentially to a range of $500 million to $525 million, with fourth quarter bookings higher sequentially - and bookings for the year of $2.25 billion to $2.35 billion.

King Digital shares were up 3-cents at $18.20 in regular trading on Tuesday, but the stock tanked to post-IPO lows after the close. Its post-IPO range was $15.26 to $23.48, and the Tuesday evening trading had King shares down 22% at $14.04.

Investors in yet another one of the new-age gaming companies are getting to find out all over again that it isn't always fun being an owner of a public company.

As a reminder, King Digital's IPO price was $22.50, and its stock traded lower in its debut.