Zynga and King Digital Are Passing Ships

King Digital Entertainment soars while Zynga falls back.

Jun 9, 2014 at 12:05PM

No one ever said that social and casual gaming companies have to move in sync, but there was a pretty serious divergence in trading between Zynga (NASDAQ:ZNGA) and King Digital Entertainment (NYSE:KING) last week. Shares of Zynga lost 14% of their value, but Candy Crush Saga parent King's stock soared 10% on the week. 

We know why Zynga tumbled. Analysts weren't impressed with its CEO's hazy outlook when it came to discussing its pipeline at an investor conference. The only material news out of King is that it rolled out Bubble Witch Saga 2, but it's not as if the original has been such a needle mover for the company. 

Anyone thumbing through King's prospectus ahead of its springtime IPO knows that Bubble Witch Saga is a distant fifth in terms of current popularity. It was attracting a daily average of 3 million active players going through 23 million games in February. Compare that to King's flagship Candy Crush Saga with its 97 million daily active users going through 1,065 million game plays on an average day in the same month.

However, you can't win if you don't play. King's biggest knock -- and one of the two biggest reasons why the stock is still trading below its IPO price of $22.50 -- is that it's too much of a one-trick pony. It hasn't been able to capitalize on its success with Candy Crush Saga by promoting its other diversions. The iconic candy-smashing game was generating nearly three times as many game plays in February as its next four largest titles combined. As bad as Zynga may have seemed when it was peaking in popularity two years ago, at least it had a pretty diversified portfolio of games.

The other reason why King's a busted IPO is that there are signs that Candy Crush Saga's popularity may have peaked during the third quarter of last year. The only silver lining in this is that that single game is now accounting for just 67% of its gross bookings. Then again, that also means that new titles -- including last week's Bubble Witch Saga 2 hitting iOS, Android, and Facebook -- will be closely watched in the future.

There's still hope for King. It's in a better place. It's a broken IPO, yes, but it's not an obliterated one. Zynga has shed more than two-thirds of its value since going public at $10 in 2011, and it's generating a lot less revenue than the nearly $1.3 billion it scored two years ago. King has been able to offset the slight sequential slide at Candy Crush Saga, and it's on pace to score another year of record revenue. King still has time to avoid Zynga's mistakes.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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