King Digital Entertainment share price down, reliance on Candy Crush Saga remains high, net profit declines

King Digital Entertainment fell by more than 10% on Wednesday as the companys first earnings release since its IPO showed a minor rise in revenue from the previous quarter, while net profit declined by a fifth. Moreover, a major part of the companys profit still relied on its two-year old Candy Crush Saga game, spurring fears among investors King might fail to sustain growth as interest for its top game fades.

The game developer reported rising revenue on the back of its “Farm Heroes Saga” game, which was launched in January. Sales jumped to $606.7 million, up almost three times from $206 million a year ago, exceeding analysts average estimate of $593.6 million. However, this was only a minor growth compared to the preceding quarters $602 million. Unique monthly users jumped to 352 million from 101 million during the comparable period a year earlier.

Kings net profit rose to $127.2 million in the three months ended March 31st, up from $52.7 million a year ago. However, this marked a 20% decline from the preceding quarters $159 million.

After Kings disappointing IPO in March, investors began worrying that unless King manages to release new hit games which can ensure consistent revenue growth, it might find it hard to retain its large player base and turn into a one-hit wonder.

Wednesdays release, however, showed that the company still relies heavily on its two-year old Candy Crush Saga game. Although its percentage in Kings total revenue declined to 67% from 78% in the last three months of 2013, the game-developers dependence still remained high.

The company generates profit when players purchase additional virtual items, such as extra lives or extended content, to help them complete levels. Its games can be played on mobile devices, as well as on personal computers through Facebook Inc.

On April 16th, King said it will develop a Chinese version of the Candy Crush Saga game in partnership with Tencent Holdings Ltd. Moreover, in an attempt to further diversify its revenue mix, the company will accelerate new games launches in the second half of the year.

Chief Executive Riccardo Zacconi said, cited by the Wall Street Journal: “The plan is to launch more games in the second half. I would expect that the decline in Candy Crush will be more than offset by new games.”

King Digital Entertainment Plc fell by 11.67% to $16.57 by 16:01 GMT in New York. The game developer is valued at $5.91 billion. According to CNN Money, the 12 analysts offering 12-month price forecasts for King Digital Entertainment Plc have a median target of $23.50, with a high estimate of $31.00 and a low estimate of $19.00. The median estimate represents a +39.80% increase from the previous close of $16.81.