UPDATE: Sterne Agee Initiates Coverage on King Digital

Sterne Agee initiated coverage on King Digital Entertainment (NYSE: KING) with a Neutral rating following Wednesday's 15 percent drop on the first day of trading. Shares are down another 2.6 percent in Thursday's trading.

Analyst Arvind Bhatia sees two critical factors near-term for the company:

• The decay rate of Candy Crush.
• Growth in Farm Heroes Saga

The analyst noted the Candy Crush Saga represents 78 percent of fourth quarter bookings, and is “already tracking 20% below peak-booking levels reached in July 2013.”

King Digital has 180 games, but revenue is “concentrated among 3 games, with represent 95% of bookings in 4Q'13,” said Bhatia.

Bhatia is projecting “y/y bookings growth of 32% and 4% in 2014/2015, respectively and adjusted EBITDA growth of 24% and 2% in 2014/2015 respectively.”