ANALYST: Kim Kardashian Is Killing 'Candy Crush'
In a note released Wednesday morning, Deutsche Bank downgraded the media company, citing two major reasons.
First, the company hasn't repeated the success of its addictive hit game "Candy Crush," and second, Deutsche Bank thinks simply too expensive to play King games, and other cheaper games are taking share as a result.
On Tuesday, King reported a drop in sales and missed analyst estimates in its quarterly earnings report. This was, for the most part, due to the waning popularity in "Candy Crush." The company is focused on developing new games, but none of them have caught on like the Crush - now the stock is getting pummeled, down 23%.
In its report, Deutsche Bank downgraded King from "buy" to "hold" and cut its price target on the stock from $27 to $12 dollars.
From the report:
King's 2Q saga started with a bang but ended with a whimper, as the company saw a step down in monetization across its portfolio late in the quarter. Management struggled to explain this decline, though seasonality and the World Cup seem to have played a role. Despite a relatively stable network size,
the company saw a geographic user shift away from the US towards lower monetizing regions. The number of paying users fell 12% Q/Q to 10.4M in 2Q from 11.9M in 1Q, though increased MGABPPU [Monthly Gross Average Bookings per Paying User] helped offset some of this decline. Competition within casual gaming is intense, with Kim Kardashian: Hollywood and 2048 going after the same demographics.
In other words, King says it's losing share to cheaper, equally addictive games. And why not? The way Deutsche Bank sees it, a Candy Crush/King addiction can be one of the most expensive forms of entertainment after live concerts.
Deutsche Bank calculates that if the average King game player spends $19.54 (per the company's own 2Q14 data) and plays for about 4.5 hours, they're spending $4.34 an hour.
So King game-players may realize that instead of playing the games, they're playing themselves.