After more than three months on the public markets, King Digital Entertainment (KING) is finally trading above its IPO price.
The maker of the popular Candy Crush Saga jumped as much as 6.4% to $23.27 on Monday, trading above its $22.50 listing price in late March. The stock, up more than 50% from its mid-May low, got an extra boost Monday from an upgrade by PiperJaffray analyst Michael Olson.
Evidence is mounting that King Digital is more than just a one-hit wonder, he said, as the company diversifies its gaming options. Candy Crush delivered about 80% of King’s gross bookings last year. King Digital has conceded that the game’s growth has likely peaked.
Mr. Olson lifted his rating to overweight from neutral and boosted his price target to $28 from $19. His bullish thesis for King Digital is Candy Crush will hook players and prompt them to spend money on other games.
“The reason we have had a neutral rating on the stock to date involves many of the same hesitations that have been surfaced by potential investors, most notably concentration risk,” he said. “With both Pet Rescue and Farm Heroes each maintaining a top 15 grossing iPhone rank over the last 6+ months, with the vast majority of that time spent in the top 10 for each title, we believe it is becoming increasingly clear that King is successfully diversifying beyond Candy Crush.”
Mr. Olson found that King Digital had an average of 5.3 games in Apple (AAPL) iTunes’ top 200 selling games through the second quarter, up from 4.9 at the end of the first quarter.
PiperJaffray In the top 20, King had 3.1 games, up from 2.9.
PiperJaffray King tumbled 16% in its trading debut in late March, branding it at the time the worst debut for an initial public offering this year, as investors wondered whether King could sustain its growth in the hit-driven mobile-gaming business. The stock first passed the $22.50 mark on July 2, gave back some of the gains the next day and then marched higher on Monday.
Still, King has generated positive cash flow from its operations for each of the past nine years. It has a history of keeping costs under control. And last year it generated twice the amount of sales as Zynga (ZNGA), with only about 1/3 the amount of staff as its rival.
With the stock finally trading above its IPO price, perhaps investors are starting to warm to the idea that the company may have some staying power.
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