How King Digital Entertainment PLC Differs From Zynga

Well-placed skepticism led shares of King Digital Entertainment PLC (NYSE: KING  ) more than 15% lower in its IPO debut, leading some to compare the stock to that of social-games developer Zynga (NASDAQ: ZNGA  ) . While that's understandable given history, Fool contributor Tim Beyers says the comparison fails in one key area. Zynga's revenue base is much more diverse, Tim says in the following video.

According to data supplied by AppMtr.com, three separate Zynga games draw at least 16 million monthly active users: Texas Hold'em Poker, Words With Friends, and FarmVille 2. King also has three high-performing games, which, in total, account for 95% of bookings. Yet there's a staggering difference between Candy Crush Saga and the other two -- Farm Heroes Saga and Pet Rescue Saga. A near 3x difference in terms of monthly active users, according to AppMtr.com. For its part, King says in its F-1 filing that Candy Crush Saga accounted for 78% of bookings in Q4.

Which of these two is the better stock? Zynga, Tim says, which is slowly finding ways to generate revenue outside of Facebook. True diversity could take years, of course. At least Zynga is making progress; King has yet to prove it's more than a one-hit wonder.

Do you agree? Do you think King is the next Zynga? Leave a comment below to let us know where you stand, and whether you would buy, sell, or short King Digital stock at current prices.

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  • Report this Comment On March 29, 2014, at 8:53 PM, jayutah wrote:

    Eric, here's the thing;

    1) King made $568 million in profits last year. Zynga, meanwhile last money in 2013.

    2) King's has 3 games in the top 10 grossing mobile apps. Zynga has 0.

    3) With $1.884 billion in revenues in 2013, King had $2.83 million in revenue per employee. Zynga went public, it had about $333,000 in revenue per employee.

    YET THE STREET IS REWARDING ZYNGA WITH HIGHER PRICE/SALES MULTIPLE (4.5 TO KINGS 3). THIS IS CRAZY. ZYNGA HASN'T SHOWN THAT CAN do what King is doing on mobile. Another case of hopes and dreams instead of going with fundamentals.

    I'll bet on Bird, Kevin and the Chief over a team with 10 average players. What I'm saying is that diversification ultimately doesn't matter in this case: Pretend Zynga had a chance to make 500 million next year (they don't, but if they did) it would be on the back of a new mega hit-and then their revenue wouldn't look so diversified either). Winning the game is what matters (you know, (profits, cash flow, y/y grow) King is doing that, and being punished for it! King is a screaming buy (which I'll be doing on the way down) until they release an earning report or two and the talking heads and analysts wake up! Savy value investors should be loading up on King. What a unique opportunity to get a reasonable multible in an industry that's in hyper growth. Barriers to entry in the top 10 grossing are real, that's what people don't realzie. King and supercell are building a moat that not many have been able to crack!

  • Report this Comment On April 22, 2014, at 11:00 AM, mattstuehler wrote:

    jayutah,

    You're ignoring this problem...

    Candy Crush is an AMAZING cash-generating machine.

    However - you have to answer this question - how long will this last? What is the shelf-life of a game like this? There are dozens of examples of mega-hits that last a few months, or a year or two, but very few examples that last longer than that.

    So - what happens if/when the Candy Crush fad ends?

    Investing in KING is a bet that either:

    1. People will be playing Candy Crush for many, many years

    2. KING will come up with ANOTHER mega-hit like Candy Crush

    Your guess is as good as mine about either of these. But Candy Crush looks much more like a fad than something we'll be playing 5 or 10 years from now, and King hasn't shown the ability to reliably churn out hit after hit.

    I'd be the Candy Crush fad ends within the next 12 months, and King struggles to turn out another game that generates 1/10th of the revenue.

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