"Our Long Thesis was predicated on the belief that the company could demonstrate overall Bookings & Revenue growth WHILE demonstrating diversification ... Q1 offered evidence. But Q2 and the Q3 outlook do not," writes RBC's Mark Mahaney, downgrading King (KING -23%) to Sector Perform and echoing a common view.
Barclays, Deutsche, JPMorgan, and Piper have also downgraded King (Pac Crest must be smiling). JPMorgan's Doug Anmuth: "While ... softness was seen across King’s portfolio, we believe the shortfall versus our expectations is more in newer games such as Farm Heroes and Pet Rescue than in Candy Crush."
On the CC (transcript), CEO Riccardo Zacconi noted Candy Crush Saga and Farm Heroes Saga's bookings softened towards the end of Q2, and that non-Candy Crush titles didn't grow as fast as expected.
He added a mix shift away from a "higher-monetizing U.S. audience" took a toll. Meanwhile, COO Stephane Kurgan admitted competition from Kim Kardashian: Hollywood and other games are an issue. "We’ve seen a number of games emerging in the top-10 where there is clearly a demographic overlap with our business."
Discussing the Nonstop Games acquisition, Zacconi declares King has made "a strategic decision to broaden our portfolio beyond casual games." At the same time, King is also counting on Candy Crush Soda (due for a full launch in Q4) and the recently-launched Bubble Witch 2 Saga to boost growth.