Glu mobile (GLUU) is a mobile game developer with a track record of produce visually excellent games. They restructured their revenue model last year and have seen quickly improving earnings ever since. They are expected to announce their first quarterly profit at their earnings announcement this afternoon. Most of the earnings jump for Q4 2013 is due to the success of Deer Hunter 2014. The title has been the company's biggest hit to date spending a significant run in the top 10 earning games on mobile over the last few months. For a more detailed breakdown of the long case for GLUU check out this excellent article.
GLUU looks like a great long term play with several big titles already released in 2014 and a few more to come. Their new revenue model should ensure these games' success. However, when entering or exiting a long term position I look for short term price action to ensure I'm getting in or out at the best possible price. A few extra percent for buying on one day vs. the next can make all the difference.
I was considering entering a position today to play the earnings announcement this afternoon. Before I did this however I wanted to check how GLUU usually behaves around its earnings announcements. In each of the last 4 quarters GLUU has beaten estimates with their earnings and the stock has dropped substantially over the next day or week.
For clarity I have defined the next trading week as the 5 trading days following the earnings announcement.
As we can see, despite beating earnings estimates every quarter, GLUU has fallen between 2 and 10 percent the day after earnings and between 2 and 15 percent over the next week.
Of course it is possible this trend will not continue. Things are changing and improving for this company. However I have thought that about some of my other investments before and been burned by it following the same old patterns that I refused to acknowledge.
So I am planning not to enter a position today but likely will later in the week. I like GLUU long term but I would hate to get in and immediately see a drop I could have bought into instead.