King Digital Entertainment plc (KING) reported third-quarter fiscal 2014 earnings of 47 cents per share, which managed to beat the Zacks Consensus Estimate of 40 cents but plunged 33.8% from 70 cents earned in the year-ago quarter.
Quarter Details
Revenues (after adjusting for deferred revenues) for the quarter decreased 12.7% year over year to $542 million, but surpassed the Zacks Consensus Estimate of $506 million.
Monthly unique users (MUUs) surged to 348 million from 269 in the year-ago quarter, and monthly active users (MAUs) grew to 495 million from 361 million in the reported quarter.
Daily active users (DAUs) were 137 million in the third quarter from 109 million in the year-ago period. Monthly gross average bookings per paying user (MGABPPU) were $20.92 in the reported quarter versus $16.60 in the year-ago quarter.
Gross bookings were $544 million in the reported quarter, down 16% from the year-ago quarter.
Margin
Total cost and expenses were up 23.6% from the year-ago quarter to $195.2 million. This rise in expenses was primarily attributable to a year-over-year increase in research & development expense (up 283%) and general & administrative expense (up 78.3%).
Adjusted net profit was $148.5 million compared with $229.5 million reported in the prior- year quarter. Net margin of 27.4% declined from 37% reported in the year-ago period.
Balance Sheet and Cash Flow
Cash and cash equivalents at quarter-end were $976.4 million. The company generated operating cash flow of $506.7 million in the quarter.
During the quarter, the company announced a special dividend amounting to $147 million paid on Oct 22, 2014.
On Nov 4, 2014, the company's board of directors approved a share repurchase program of $150 million, which is currently subject to regulatory and shareholder approvals. The company expects to obtain these approvals during the first quarter of 2015.
Outlook
The company expects gross bookings in the range of $525–$550 million in fourth-quarter 2014.
Our Take
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 company’s innovative product pipeline is a positive.
However, strong sales of new consoles from Microsoft (MSFT) and Sony are expected to intensify competition for King Digital in 2014. Moreover, competition from Zynga (ZNGA), Glu Mobile (GLUU) and other established players with a more visible business model like Electronic Arts, Activision Blizzard and Take-Two Interactive cannot be ignored.
Currently, King Digital has a Zacks Rank #3 (Hold).
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