King Digital Entertainment plc (KING) is set to report third quarter 2014 results on Nov 6. Last quarter, it posted a 4% positive surprise.
Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
With the rapid adoption of smartphones and tablets, we expect the demand for King Digital’s mobile-based games to increase considerably. The company derives approximately 74% of its revenues from mobile platforms. The launch of new games in the mobile world including the likes of Candy Crush Soda Saga will drive growth going forward.
However, competition from Zynga (ZNGA), Glu Mobile (GLUU) and other established players with a more visible business model like Electronic Arts (EA), Activision Blizzard (ATVI) and Take-Two Interactive (TTWO) cannot be ignored. Moreover, overdependence on Candy Crush Saga for its revenues may cost King Digital heavily going forward. The fact that Candy Crush Saga is losing players on a regular basis poses a major concern for the company.
Under such circumstances, we believe that the company needs to develop other franchises capable of delivering strong growth consistently. However, so far, it has failed to find any replacement, which remains a headwind for the rest of 2014.
Earnings Whispers?
Our proven model does not conclusively show that King Digital is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 40 cents. Hence, the difference is of 0.00%.
Zacks Rank #3 (Hold): Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
- Stratasys Ltd (SSYS) with an Earnings ESP of +11.11% and a Zacks Rank #3
- Web.com Group, Inc. (WWWW) with an Earnings ESP of +1.92% and a Zacks Rank #2
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