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King Digital's Tiny Troubles

Tickers in this article: FTR GT KING NDAQ ZNGA
Updated from 9:31 a.m. ET with Sterne Agee analyst comments and afternoon share prices.

NEW YORK (TheStreet) - By tech company standards, King Digital Entertainment posted stellar first quarter results that included $606 million in revenue and $127 million in net income on rising user growth for the popular mobile game maker. Yet, there are worrying signs in King Digital's earnings that investors might be wise to focus upon.

>> Read More: Analysts Still Courting King Digital

King Digital's monthly unique paying users (MUPs), the less than 12 million users that pay for digital goods and drive pretty much all of the company's revenue and earnings, fell between the fourth quarter of 2013 and the first quarter of 2014. That drop in King Digital MUPs came as the company reported strong growth on just about every other user metric, and should be worrying for those who want to project future earnings.

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"First quarter 2014 MUPs declined compared to 12.2 million in the fourth quarter of 2013. We believe this decrease is primarily a result of reduced payment activity among the occasional payers on the network, in addition to the introduction of virtual currency in some of our games," King Digital said in its earnings.

As a result, revenue barely grew quarter-over-quarter, and net profits tumbled 20% amid heavy marketing spending for the company's Farm Heroes Saga game and a 30% sequential rise in equity-related compensation to $78 million.

Currently, King Digital is in the process of trying roll out new games to replace its addictive Candy Crush Saga game, which drove over 1,000% user, profit and revenue growth and lead to the company initial public offering on the New York Stock Exchange at an over $7 billion valuation.

In the first quarter, bookings at the company related to Candy Crush Saga fell to 67% of overall bookings, while Farm Heroes Saga rose. King Digital's 1% sequential rise in bookings meant that growth at Farm Heroes surpassed declines from Candy Crush.

Sterne Agee analyst Arvind Bhatia said Candy Crush bookings dropped more than expected. In contrast to a 2% sequential drop in Candy Crush bookings, King Digital reported that bookings fell 13% quarter-over-quarter to $429.5 million. Bhatia had also forecast Candy Crush to represent 75% of overall bookings, indicating that paying user activity slowed faster than expected.

Although a rise in Farm Heroes Saga bookings helped to cushion King Digital top-line, expense, or the cost to achieve bookings, rose as the company marketed the game. Meanwhile, equity-based compensation hit King Digital's bottom line.

Still, there is a way to forget about those worrying trends for King Digital, which currently carries a market capitalization on par with companies as First Republic Bank , Goodyear Tire , Frontier Communications or Nasdaq .