King Digital Entertainment PLC (NYSE:KING) shares plunged as much as 15.56% on its first day of trading on the New York Stock Exchange. The company is known for its wildly popular title Candy Crush Saga. Sterne Agee analysts Arvind Bhatia and Brett Strauser have initiated coverage with a Neutral rating on the stock.

King Digital Entertainment

‘Farm Heroes’ is a bright spot for King Digital

Analysts said that King Digital Entertainment PLC (NYSE:KING) had an exceptional run. But its growth has slowed recently after Candy Crush Saga peaked in July 2013. The hit title represented 78% of the company’s bookings in Q4, but is tracking 20% below its July 2013 peak. Pet Rescue Saga was the second biggest contributor last year. But it peaked in Q4, only two quarters after its launch on mobile. Pet Rescue Saga is tracking 15% below its peak levels.

However, the third title Farm Heroes Saga is showing strong momentum. King Digital Entertainment PLC (NYSE:KING) released it on mobile in January. Within two weeks of its launch, it was among the top-5 grossing titles on Android. And in less than six weeks, it entered the elite top-5 club on iOS as well. If this momentum continues, the Farm Heroes Saga will become a critical growth driver, and reduce the pressure on Candy Crush Saga.

King Digital

But King Digital Entertainment PLC (NYSE:KING)’s revenue concentration is a big issue. Though the company has an IP portfolio of over 180 games, 95% of its revenue comes only from three games: Candy Crush Saga (78%), and Pet Rescue and Farm Heroes Saga (17% together). The company management expects the dependence and revenue concentration on Candy Crush Saga to decline as the company introduces other new games.

King Digital’s adjusted EBITDA margins to decline

Though the number of monthly unique players fell 6.5% QoQ during in the fourth quarter to 12.2 million from 13 million in Q3. But the overall spending declined by just 2.5%. That’s because the average spending rose 4% QoQ and 7% YoY. King Digital Entertainment PLC (NYSE:KING) says that more players have started spending on multiple games, which is helping the company’s revenues.

Sterne Agee forecasts King Digital Entertainment PLC (NYSE:KING) to register a booking growth of 32% in 2014 and 4% in 2015. The adjusted EBITDA growth is likely to be 24% this year and -2% in 2015. Analysts expect the company’s adjusted EBITDA margins to go down by 250 basis points in 2014 and 230 basis points in 2015. They estimate 2014 EPS of $2.53, and 2015 EPS of $2.39.

King Digital Entertainment PLC (NYSE:KING) shares plunged another 1.89% to $18.64 in early trading on Thursday.