King Digital Entertainment PLC (NYSE:KING)’s initial public offering was just a few months ago, and shares have fallen off quite significantly since then. Investors seem to be waiting to see if the company will meet the same fate as competitor Zynga Inc (NASDAQ:ZNGA), taking a rather negative view of the company while they wait. However, Webush analysts believe that the game maker’s bookings will stabilize in the second and third quarter and begin growing again in the fourth quarter.

King Digital Entertainment

King Digital’s multiple is low

In a report dated June 25, 2014, analysts Michael Pachter, Nick McKay and Nick Citrin say that currently, King Digital Entertainment PLC (NYSE:KING) shares are trading at five times EV / EBITDA. They say the company has seen “remarkable success” in both bookings and profits from the Candy Crush game. Because of the current multiple, they say investors must believe that Candy Crush is about to take a nosedive. This is basically what happened to Zynga Inc (NASDAQ:ZNGA)’s Farmville series after the company went public.

The Wedbush team sees a different future for King Digital Entertainment PLC (NYSE:KING) though. They expect the company’s bookings to stabilize in the current and third quarters and then ramp up late in the third quarter. They also expect contributions from the company’s other games will totally offset the expected declines in bookings for Candy Crush. They believe King Digital “has sufficient control over its cost structure” so that it can stabilize its cash flow and EBITDA.

King Digital moves into China

The reason Pachter and his team think King Digital Entertainment PLC (NYSE:KING) will see a ramp in third quarter bookings is because the company will be rolling out Candy Crush in China. They say by late in the third quarter, the company will begin recognizing contributions from the region. Also the company will have a full quarter of bookings from Bubble Witch Saga 2, which was released this month.

In the fourth quarter, they expect King Digital Entertainment PLC (NYSE:KING) to see “meaningful contribution” from its new game Candy Crush Soda Saga. Although it bears the Candy Crush name, it’s different enough to be considered a second game.

However, it bears enough similarities to the original that they think it will draw the interest of current Candy Crush players. They believe Candy Crush Soda Saga will help King Digital Entertainment PLC (NYSE:KING) grow overall bookings quarter over quarter. At that point, they expect the company’s stock to go “significantly higher” later this year because of the ramp-up in bookings, cash flow and EBITDA.

Investors misunderstand King Digital

The Wedbush team thinks investors just don’t understand the drivers of free-to-play spending. As a result, they think investors believe King Digital Entertainment PLC (NYSE:KING)’s success is only temporary. They think the company is “built to last,” however, noting that the entire free-to-play market is a $12 billion annual market with annual growth of between 25% and 30%. They predict that King Digital will continue to dominate the market and hold onto its extremely large market share.

They have maintained their Outperform rating and $25 per share price target on King Digital Entertainment PLC (NYSE:KING). This is a multiple of nine times their 2015 earnings per share estimate of $2.80.