Watch Out for King Digital Entertainment's New Trick

Source: King Digital Entertainment 

King Digital Entertainment (NYSE: KING  ) has a new trick coming that could cause its number of mobile users to skyrocket. There's a catch that will make it harder to determine actual player retention at a glance, though. The trick comes as King continues to struggle post-IPO while competitor Zynga (NASDAQ: ZNGA  ) pursues routes away from social gaming. What does King have up its sleeve? 

According to VentureBeat, King has signed up with AppAttach, a company that will help the gaming company's titles become installed prelaunch in select devices. AppAttach works to pair the right apps and devices based on what customers might use. The instant presence will likely earn King new players who are curious about an app that is already on the phone, but the long-term impact is what matters; that could prove harder to track thanks to this move.

What do investors need to watch now that King's pursuing a prelaunch position? 

Beware the monthly user metrics
The two most important monthly user metrics for social media companies are monthly active users and monthly unique users. What's the difference? According to the definitions that King spells out in its regulatory filings: 

  • Monthly active users: Number of people who played a certain game in a 30-day period. 
  • Monthly unique users: Number of unique individuals who played any of King's games during a 30-day period. 

The catch here is that a player doesn't have to continuously play throughout that month. It only takes one play (say, as a test run) to count as a monthly user. Preinstalled games will earn more one-and-done players who want to see exactly what that app is doing on the phone; this can artificially inflate monthly user numbers without meaning much for player retention. 

User counts could spike highest right around the time a new device launches. With older devices remaining on the market longer, though, preinstallation can continue to cause some fluctuations further down the line. 

The altered monthly active user counts will also create problems for the two key monetization metrics that investors watch. 

Keep an eye on this monetization metric 
The monthly unique payers, or MUP, metric refers to the number of users who complete in-game purchases during a 30-day period. The one-and-done user spikes won't matter here because MUPs cares how many players pay up, not how many show up. 

King's games are free-to-play, so its unlikely that many users popping in for a test run will actually buy in-game incentives. Investors still wanting a quick glance at King's current health should stick with MUPs. 

Sign of trouble? 
King discontinued advertising last year, so the prelaunch installments only serve to lure more users into playing King's titles at least once. The company needs to ramp up its player numbers on its secondary games, since Candy Crush Saga still accounted for 67% of gross bookings as of the first-quarter report. Competitor Zynga had three titles making up 64% of its online game revenue in that same quarter, so King still has a long road to move away from Crush dependence.

Will installing secondary games on new devices help boost those games? King will likely pick up some new devotees in the process, but presence alone isn't enough to convince the masses to even play the games let alone make in-game purchases. The company has historically monetized about 4% of its player base (double that of Zynga), but the new trick could push that number down.

I can't blame King for pursuing this route, though, as any method that brings in new users can help, even with King having to pay AppAttach a share of the money earned. King also has to act fast because if Candy Crush Saga falls out of favor suddenly then the business will come crashing to the ground. The company also has to worry about what Zynga is up to with its acquisition of NaturalMotion, a creator of both popular mobile games and a gaming engine that has appeared in some of the best-selling console games.

Foolish final thoughts
This new deal might not lead to a substantial boost in player retention for King, and the company remains overly dependent on Candy Crush. Investors should keep an eye on MUPs for a quick checkup and track the monthly user metrics over the long-term to see if actual retention has improved.  

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