King Digital Entertainment plc KING announced on Nov 2 that it has been acquired by video game giant Activision Blizzard Inc. for $5.9 billion. It is slated to report third-quarter 2015 results on Nov 4. In the last-reported quarter, King Digital recorded a positive earnings surprise of 13.89%. Let’s see how things are shaping up for this announcement.
Factors to Consider
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.
In the second quarter, the company witnessed healthy growth in bookings of other games apart from Candy Crush. We expect the launch of new games in the mobile world including Candy Crush Soda Saga to drive results in the to-be reported quarter.
For the third quarter of 2015, the company expects gross bookings in the range of $460 million–$485 million.
King Digital had posted mixed second quarter results with the bottom line exceeding the Zacks Consensus Estimate while the top line missed the same. Adjusted revenues for the quarter decreased 17.5% year over year.
Earnings Whispers?
Our proven model does not conclusively show that King Digital will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #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 29 cents. Hence, the difference is 0.00%.
Zacks Rank: King Digital’s Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
- FireEye, Inc. FEYE, with Earnings ESP of +6.82% and a Zacks Rank #2 (Buy)
- Agilent Technologies Inc. A, with Earnings ESP of +2.13% and a Zacks Rank #2
- CyberArk Software, Ltd. CYBR, with Earnings ESP of +10.00% and a Zacks Rank #2
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