Why King Digital Entertainment PLC Stock Popped Today

Is King Digital's jump meaningful? Or just another movement?

Steve Symington
Steve Symington
Jul 2, 2014 at 6:07PM
Technology and Telecom

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Extending a two-day winning streak following two positive analyst notes, shares of King Digital Entertainment PLC (UNKNOWN:KING.DL) jumped another 10% early Wednesday before closing the day up around 6%.

So what: Shares of King Digital have risen around 27% since Monday, when at least two analysts chimed in with bullish comments for the mobile game specialist. First, JPMorgan's Doug Anmuth stated King Digital's strong free cash flow of around $800 million this fiscal year should enable it to return cash to shareholders. Anmuth also noted he believes King Digital's upcoming game launches should provide much-needed diversification. In addition, Wedbush analyst Michael Pachter expressed confidence in King Digital's "large market share" in the free-to-play games space, and insisted it's "built to last" given the impending contributions from other games in its pipeline.

Now what: Today's gains bring the stock almost exactly back to its March IPO price of $22.50 per share. Since then, the overwhelming worry for King Digital shareholders has been its over-reliance on the currently all-important Candy Crush Saga game, which single-handedly accounted for 67% of King Digital's bookings in the first quarter. Personally, I remain skeptical of the economics driving sustained profitability for businesses in the free-to-play game space. But if King Digital can merely prove it's not a one-hit wonder, I'll admit there could be little preventing the stock from rewarding patient shareholders from here.