Candy Crush Rides Toward The Sunset, Making Buckets Of Cash Along The Way

Fewer people are paying to play the games made by King Digital, maker of Candy Crush Saga. But the ones that are still around are spending a lot.

King Digital, the maker of Candy Crush Saga, is still looking for its second act.

Candy Crush is still massive. The game has held a commanding presence on the App Store — and is regularly in the top three rankings of the top grossing games on both the Google Play store and Apple App Store. But, just like Farmville maker Zynga in its post-IPO haze, King still hasn't proven it's much more than a one hit wonder.

The total number of people paying for its games has fallen by a third since this time last year, but those that remain are paying more — meaning the so-called whales, or big spenders with serious Candy Crush habits -- have stuck around and keep spending.

Despite the big drop in paying customers, King was still able to beat expectations set by analysts, who were expecting a decline in revenues. King is working hard to diversify its revenue across a portfolio of games, as Candy Crush Saga inevitably rides into the sunset. But the crazy success it found with Candy Crush Saga isn't a straightforward thing to replicate, and King needs to either stumble its way into a massive hit the way a lucky gaming upstart does, or find a way to predictably turn out big hits, just like its relatives in the entertainment business do.

Progress has been made on that front. A year ago, just 15% of the company's business came from games other than Candy Crush; that number is now up to 49%. That follows what numerous game developers and industry insiders told BuzzFeed News prior to King's IPO: The company would have to create a second hit it wanted to convince investors it was a sustainable business for the long run.

One particularly-telling note is that King has not broken out the specific success of its individual games, and the titles it singles out in its financial reports are often changing. In the second quarter, the company said it compensated for the decline in Candy Crush Saga thanks to two other titles, Bubble Witch Saga 2 and Farm Heroes Saga. In the first quarter, it was Farm Heroes Saga that carried the company and offset the declines of Candy Crush Saga. In the third quarter, it was simply "other games."

Still, King's total footprint continues to grow. The company said it has 137 million people playing its games every day and 348 million people playing its games every month. That's up from 109 daily and 269 million monthly users at this point in 2013. The company said the decline in the people playing games on Facebook was offset by an increase in the number of people playing games on mobile devices.

Farmville maker Zynga, historically dominant on Facebook, also said today that more than half of its bookings came from mobile devices, showing that even the strongest desktop-focused social gaming companies have had to shift their strategies to mobile.

Even as its business begins to contract as Candy Crush Saga declines, the company pulled the tried and true method of pleasing investors: a share buyback, in this case $150 million worth. Cash isn't in short supply at King -- Candy Crush Saga is still an insanely profitable part of its business and the company is still generating healthy margins. King's games spun off $177 million in cash in the most recent quarter and it now has about $975 million in cash on hand - more than twice as much as it did a year ago.

This means that, much like Yahoo, it can appease investors by returning chunks of that cash to shareholders. But it also needs to spend to market its games and drive installs for its new titles, in the hopes of sparking the viral growth that Candy Crush Saga attained. Getting that balance right is the company's biggest challenge.

As you can see in the company's results, King has become a big marketing spender, dropping $100 million on sales and marketing in the last three months alone. No mobile gaming company is immune to this, and Supercell, the maker of Clash of Clans, often runs TV spots for its games, which still dominate the top-grossing segments of the app charts. Thanks to well-targeted distribution channels like Facebook mobile app install advertising, the overall reach of new mobile games hitting the market has grown dramatically.

That means more games are hitting the market, some from tiny first-time outfits chasing the dream of viral success, and others from well-tuned studio machines that are getting closer to cracking the code for repeat success. Having one game go ballistic is enough to launch a company, but the trick is being able to convert that viral boom into an ongoing run of hits. King isn't there yet.

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