King Digital Entertainment PLC (NYSE:KING) has already had a great couple weeks, rallying from $16.98 on June 26 to $21.87 just ahead of the weekend holiday after Wedbush analysts argued that even a skeptical take on the gaming company didn’t justify trading at ~5x EV/EBITDA. It got another boost today when Piper Jaffray senior analyst Michael Olson upgraded King from Neutral to Overweight and increased its price target from $19 to $28. Olson says that “it is becoming increasingly clear that King is successfully diversifying beyond Candy Crush,” Tomi Kilgore at MarketWatch reports, and Olson gives some more detail in an interview with CNBC, but he doesn’t seem to refute the main critique of King’s business plan.

King Digital Entertainment

App gaming revenues dominated by top three titles

Olson’s argument is that King Digital Entertainment PLC (NYSE:KING) is proving its ability to diversify beyond just Candy Crush Saga because it has consistently had a number of other games on the top 2o list for highest iOS gaming revenue. That sounds great, but the drop in gaming revenue is incredibly steep. According to ThinkGaming, Candy Crush Saga, the second highest grossing iOS game, makes about $950,000 per day. Farm Hills Saga, King’s second best game and the sixth best overall, pulls in around $190,000 per day, while Bubble Witch 2 (14th overall) makes $77,000. Games 11 – 20 on the list don’t earn as much combined as Candy Crush Saga, and this need to produce megahits, not just reasonably popular games, is what drove so much market skepticism in the first place.

Olson says that Candy Crush Saga accounted for 67% of bookings in 1Q14, and that he expects it to account for more than 50% until late 2015, with a new version of Candy Crush coming out to possibly boost revenues or at least slow their decline.

Olson argues the app gaming moat is widening

Olson also says that cross-platform marketing is playing an increasingly important role in establishing new games, but the biggest hit of the year was the offhand creation of media shy developer Dong Nguyen (it only hit $50,000 per day, but was on its way up when Nguyen pulled the plug). King Digital Entertainment PLC (NYSE:KING) may have a huge advantage pushing games into the top 20 spots, but it’s only the top few slots that matter.

Finding out that King Digital Entertainment PLC (NYSE:KING) is spending $400 million on marketing (the number Olson cites in his CNBC interview) to cement its market position should be more worrying than encouraging – at current daily revenues that’s more than it will earn from Farm Heroes Saga, Pet Rescue Saga, and Bubble Witch 2 Saga combined. If the diversification away from Candy Crush requires such heavy marketing, maybe King is in even greater need of another big hit than we thought.