NEW YORK (TheStreet) -- King Digital Entertainment (KING) shares are skyrocketing 15.12% to $17.89 on heavy trading volume in Tuesday's early morning trading session after video game maker Activision Blizzard (ATVI) announced that it will buy the "Candy Crush Saga" maker for $5.9 billion.
TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio, commented on the deal, saying: "Bobby Kotick, the CEO of Activision, is one of the great money makers of our time. I have known Bobby for 30 years. If he says this is a good deal it's a good deal."
Under the terms of the deal, Activision Blizzard will acquire all of the outstanding shares of King for $18 in cash a share. The deal is expected to be completed by spring of 2016.
"We are very much looking forward to working with Activision Blizzard," King Digital CEO Riccardo Zacconi stated. "We have two teams that, together, will have an amazing footprint, innovative technology, and leadership across platforms, and unique, established IPs to delight one of the largest networks of players in the world."
Activision Blizzard said that this acquisition will allow the company to be a global leader in interactive entertainment across mobile, console and PC platforms, and added that the deal will give the combined companies more than 500 million monthly active users globally.
Separately, TheStreet Ratings team rates KING DIGITAL ENTERTAINMENT as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
We rate KING DIGITAL ENTERTAINMENT (KING) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Software industry average. The net income has significantly decreased by 27.9% when compared to the same quarter one year ago, falling from $165.37 million to $119.30 million.
- Net operating cash flow has declined marginally to $151.37 million or 6.40% when compared to the same quarter last year. Despite a decrease in cash flow of 6.40%, KING DIGITAL ENTERTAINMENT is in line with the industry average cash flow growth rate of -11.94%.
- KING DIGITAL ENTERTAINMENT's earnings per share declined by 26.9% in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings ($1.84 versus $1.81).
- The gross profit margin for KING DIGITAL ENTERTAINMENT is rather high; currently it is at 68.24%. Regardless of KING's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KING's net profit margin of 24.03% compares favorably to the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 18.8%. Since the same quarter one year prior, revenues fell by 16.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: KING