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King Digital Q3 Earnings & Revenues Top Estimates, Fall Y/Y

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King Digital Entertainment plcKING , the maker of the popular game Candy Crush, reported third-quarter 2015 results, a few days after announcing its acquisition by Activision Blizzard ATVI .

The company's adjusted earnings (including share-based and other equity-related compensation expenses) came in at 39 cents per share. Earnings though ahead of the Zacks Consensus Estimate of 29 cents came in lower than the prior-year quarter's figure of 48 cents.

King Digital (KING) - Earnings Surprise | FindTheCompany

King Digital reported non-GAAP earnings per share of 45 cents, which decreased from 56 cents earned in the year-ago quarter.

Along with the quarterly results, the company also unveiled its latest offering, Blossom Blast Saga , its first linker game for mobile, thereby expanding its game portfolio to 14 titles

Quarter Details

Adjusted revenues for the quarter decreased 2.3% year over year to $502 million but surpassed the Zacks Consensus Estimate of $479 million. On a GAAP basis, revenues were $480 million, down 7% on a year-over-year basis.

Gross bookings were $502 million in the quarter, down 7.7% from the year-ago period.

Monthly unique users (MUUs) decreased to 330 million from 348 million in the year-ago quarter. Monthly active users (MAUs) also came down to 474 million from 495 million in the year-ago quarter.

Daily active users (DAUs) were 133 million in the quarter, lower than 137 million in the year-ago period. Monthly gross average bookings per paying user (MGABPPU) came in higher in the reported quarter at $24.45 compared with $20.92 in the year-ago quarter.

Margin

Total cost and expenses declined 6% from the year-ago quarter to $325 million in the quarter.

Adjusted profit was $142 million compared with $177 million reported in the prior-year quarter. Adjusted EBITDA was $180 million compared with $216 million in the prior-year quarter. Adjusted EBITDA margin was 38%, down 300 basis points year over year.

Balance Sheet and Cash Flow

Cash and cash equivalents at quarter-end were $920 million, up from $785 million as of Jun 30, 2015.

The company generated operating cash flow of $606 million in the nine-month period ended Sep 30, 2015.

Outlook

The company expects gross bookings in the range of $475 million - $500 million in the fourth quarter of 2015.

Acquisition Details

King Digital, on Nov 2, revealed that it would be acquired by video game giant Activision Blizzard for $5.9 billion or $18 per share, a premium of approximately 27% over its average trading price in the past three months. The transaction is expected to close by spring 2016.

Post the closure of the deal, King Digital's management including its CEO will be retained and the Dublin-based company will continue to function as an independent unit.

The acquisition is a positive for King Digital. The company, which went public last year, has been struggling to drive revenue growth. The company's other games have not been able to emulate the success of Candy Crush, the market for which is maturing now. Amid this scenario, a buyout by Activision will give a new lease of life to the company, especially amid stiff competition from players like Zynga ZNGA , Electronic Arts Inc. EA and others.

Our Take

The company derives the major portion of its revenues from mobile platforms. With the rapid adoption of smartphones and tablets, the demand for King Digital's mobile-based games is expected to increase considerably.

Furthermore, as per Activision, the mobile gaming industry is expected to generate $36 million in revenues by 2015, and from 2015 to 2019, it is expected to register cumulative growth of 50%.

We believe that the above mentioned acquisition complements the strengths of both the entities. The integration is likely to result in the formation of one of the biggest global players in the interactive entertainment industry.

Though the boards of both companies have unanimously approved the deal, it is awaiting shareholders' and regulatory approval.

Currently, King Digital has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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