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: Shares of freemium game specialist King Digital Entertainment PLC (UNKNOWN:KING.DL) were up 12.9% as of 1:40 p.m. Friday after the company announced stronger-than-expected fourth-quarter results.
So what: Quarterly adjusted revenue fell 7% year over year to $559.2 million, which translated to a 10.9% decline in adjusted earnings per share to $0.57. And gross bookings -- a key metric for measuring in-game virtual goods purchases -- fell 7.2% to $586.3 million. That might not sound encouraging, but analysts were only expecting earnings of $0.47 per share on sales of $519.9 million.
King Digital also noted its board declared a special dividend to shareholders of $0.94 per share -- or $300 million in aggregate -- to be paid on March 24, 2015, to shareholders of record as of March 4. King also stated it has already repurchased nearly 750,000 shares for roughly $10 million under a $150 million share repurchase program approved on Jan. 29, 2015.
Finally, King Digital announced on Feb. 6, 2015, it had signed an agreement to acquire Z2Live, a Seattle-based game development company, for $45 million in cash and up to $105 million of additional cash linked to future revenue generated by certain games launched by Z2 over a specific period.
Now what: That should help King Digital further reduce its reliance on its popular Candy Crush Saga titles, which by themselves generated a whopping 45% of the company's total gross bookings in the fourth quarter. To its credit, however, that's a huge decrease from the 78% of total bookings Candy Crush generated in the year-ago period.
In the end, however, one earnings beat still doesn't make a successful long-term business. And while King Digital could certainly continue to stem the decline of its bookings, revenue, and earnings, I'm still too skeptical of the sustainability of the free-to-play game making industry to hop on board with the bullish crowd.
Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.