King Digital, which makes the popular “Candy Crush” mobile game, was down more than 25% in after-hours trade on Tuesday after announcing a surprising $US150 million special dividend.
King Digital’s net income in the second quarter totaled $US161.7 million, and the company reported $US832.2 million of cash and cash equivalents at the end of the quarter.
So it isn’t like the company doesn’t have the funds to pay out a dividend, which is worth $US0.469 per share outstanding and is payable on Sept. 30, but a large payout from a company that recently went public is a surprising move.
Essentially, King Digital just paid out its entire first quarter earnings in the form of a dividend. This payout could be read a few different ways.
For one, investors could see it as a reward, given that the stock has closed above the $US22.50 initial offering price just once in five months though its cash position is still fairly strong.
Another way to see the payout is King Digital waving the white flag on its future. The company’s “Candy Crush” game has been a massive success, but following up a hit of that calibre with another is a huge ask for any company.
There’s also the matter of the company’s post-IPO lock-up expiration.
On Twitter, CNBC’s Carl Quintanilla, citing comments from analysts at Pacific Crest, said that 93% of King Digital shares are impacted the Sept. 22 lock-up expiration that looms. A lock-up expiration is the first date that insiders can sell their stake in a company after its IPO, and so this dividend could be seen as a way to keep investors in from selling their stake.
In its earnings release, King Digital added that: “In addition, the Company’s executive officers, directors, founders, and affiliated funds, including Bellaria Holding S.a.r.l of whom Apax WW Nominees Ltd is the sole shareholder, together representing 80% of outstanding shares, have agreed to a new lock up with the Company through the date following the Company’s announcement of fourth quarter and full year 2014 earnings.”
The read-through on this announcement could be that the company expects the remaining 13% of shares impacted by the lock-up expiration to be sold into the market.
In addition to the dividend announcement, King Digital said that in Q2, the company earned $US0.59 per share, which was in-line with analyst expectations. Bookings were also better than expected, coming in at $US611 million against expectations for $US606 million.
King said bookings would slow in the third quarter, with the company expecting bookings of $US500 million to $US525 million, with full-year bookings of $US2.25 billion to $US2.35 billion.
With a decline of more than 23%, King Digital has had more than $US1 billion taken off its total market capitalisation in just a few minutes after this report.
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