King Digital Entertainment Plc's stock plummeted more than 13 percent on Wednesday as signs that the company may be losing steam overshadowed better-than-expected quarterly results from the maker of hit mobile game "Candy Crush Saga."
King, reporting for the first time since a disappointing initial public offering earlier this year, told analysts on a conference call that some players of King's two-year-old signature title were spending less money in the game as it matures.
Candy Crush Saga accounted for two-thirds of the company's gross bookings in the first quarter, down from 78 percent in the previous quarter.
Total gross bookings rose just 1 percent from the fourth quarter 2013. And though revenue from in-game purchases was up, monthly unique payers - gamers who actually spend money in King's titles - dropped to 11.9 million from 12.2 million in the previous quarter.
Moreover, King's net profit of $127 million, was up from $53 million a year ago, but slipped 20 percent from $159 million in the previous quarter. On a call with analysts, executives said the company incurred expenses in marketing its new "Farm Heroes Saga" game in the first quarter.
King's shares dropped to $16.25 in late afternoon trading. The stock has not approached its IPO price of $22.50 since it began trading in March.
Arvind Bhatia, an analyst with Sterne Agee, said Candy Crush was fading sooner than expected. "Other games made up for it ... if you are looking at it glass half full," he said.
"But if you are looking at the glass half empty, you'd say their core flagship is declining really fast," Bhatia said. "All the pressure is on the new games and there's no guarantee they will be sustainably successful."
If it fails to cultivate a suite of hits beyond its marquee title, King may be unable to dodge the fate of "Farmville" maker Zynga Inc and "Angry Birds" developer Rovio Corp, which are both struggling to retain players.
"What matters is if each quarter, the rate of growth of their other games offsets the rate of decline in Candy Crush and they are diversifying and they are no longer a one-hit wonder," Michael Pachter, an analyst at Wedbush Securities, said.
Investors have long warned about the fickle nature of the mobile gaming industry, where titles can race to the top of app-downloads charts but go downhill just as quickly.
"You can have hits and once they start declining, they decline in a very fast spurt," Bhatia said.
King plans to launch new titles in the second half of the year, including a version of Candy Crush for the Chinese market this summer. It will also release sequels to Candy Crush and its "Bubble Witch Saga" game.
Farm Heroes Saga, which debuted on mobile devices in January, has quickly become one of the top-10 grossing games on Apple's and Google's app stores. But whether it continues to retain users, and King's new offerings are successful, remains to be seen.
"The decline of Candy Crush Saga will be more than offset by our new IP (games)," King's Chief Executive Officer Riccardo Zacconi told analysts.
London-based King's first-quarter revenue rose three-fold to $606.7 million from the year-ago period while net profit rose to $127.2 million, or 41 cents per share from $52.7 million, or 16 cents per share, a year earlier.
Excluding items, King earned 61 cents per share. Analysts on average were expecting a profit of 59 cents per share on revenue of $601.5 million, according to Thomson Reuters I/B/E/S.
King's shares hit a low of $15.84 on April 15 on the New York Stock Exchange.