King has released its Q1 earnings for 2014, and they are not pretty

• Tweet
• Pin It

The stock market will respond to how King’s performance compares to the "indications" they gave during their IPO roadshow. That means that there are some ways we can look at the these numbers and understand what is going on, but unless we were in on those roadshows to understand investor expectations, it’s hard to analyse the results.

BUT a share price fall of 13% suggests that in the eyes of investors, King has failed to deliver. Some highlights (or lowlights):

• revenue flat-ish at $606.07m, but profit down from $159.2m in Q4 13 to $127.2m in Q1 14, blamed in part on "planned marketing spend for Farm Heroes"
• a trend of profit decline over two quarters which is bad and will make many investors think that a) King was overvalued at IPO and b) that they were sold a pup.
• DAUs are up by 19 million, which is good, but may be driven by increased marketing spend. MAUs up 73 million to 481 million is good, but by a quirk of how King accounts for MAUs, these may be duplicate Candy Crush players also playing Farm Heroes Saga. Oh, and they have spent a bucket load on customer acquisition in Q1.
• Payers declined by from 12.2 million to 11.9 million. In a quarter where number of MAUs grew 18%, a fall in payers means a meaningful fall in conversion rate.
• Monthly Gross Average Bookings Per Paying User (a sort of proxy for revenue per user) rose 4% to $18.02. That’s good, but it suggests that the marketing spend is bringing in new users, not new spenders.

The numbers are challenging in that the vanity metrics (revenue, users) are up, while the success metrics (profits, conversion rate) are down. The bright spot is monthly spend (MGABPPU), but that is only up 4%.

A secular decline. The company spending to reverse that decline but not seeing profits or conversions. An increased audience but a smaller paying audience. If I were an investor, and these were the results mere weeks after an IPO roadshow, I’d be pissed.

(If you think I’ve missed anything, let me know. Also, I am not an investment analyst. I don’t have access to the company, and do I pore over spreadsheets breaking down every facet of their business. These are my first impressions. But based on the 13% fall in King’s share price, I am not alone.)

Related Posts

• 

  Valuation multiples for F2P games–the Innogames valuation
  Valuation multiples for F2P games–the Innogames valuation
• 

  Free-to-play marketing costs rise and profitability falls at King and Supercell
  Free-to-play marketing costs rise and profitability falls at King and Supercell
• 

  Is conversion rate usually quoted daily, monthly or lifetime?
  Is conversion rate usually quoted daily, monthly or lifetime?
• 

  Why I think King’s share price will fall by half
  Why I think King’s share price will fall by half