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Summary

  • Glu has a history of being cautious with financial guidance.
  • Based on the early success of Kim Kardashian: Hollywood, Glu again raised guidance, but left room to again beat expectations.
  • Early indications from July data suggests Glu will easily beat guidance.

Since Glu Mobile, Inc. (NASDAQ:GLUU) announced their 2nd Quarter earnings on July 30th, the stock has tanked by more than 25% in spite of crushing earnings and raising 3rd Quarter estimates. Investors did not like the cautious optimism they heard from the management team and were looking for a conference call that pumped them up and predicted unobtainable estimates for 3rd Quarter.

(click to enlarge)

The management team at GLUU has a habit of cautiously providing guidance that it knows it can at the minimum meet, if not beat:

  • 4th Quarter 2013: Revenue estimates were for $38-$40 million with the actual revenue coming in at $42.8 million. Deer Hunter 2014 was launched during this quarter and with only half of a quarter of revenue, represented almost 65%.
  • 1st Quarter 2014: Revenue estimates were for $38-$40 million with the actual revenue coming in at $47 million. Much of the success came because of the continued popularity of Deer Hunter 2014
  • 2nd Quarter 2014: Revenue estimates were for $30-$32 million, with actual revenue coming in at $35 million. Again, the majority of revenue came from Deer Hunter 2014, however, it accounted for just over 40% of revenue.

The success at the end of the 2nd Quarter prompted GLUU to raise its earnings estimates for the 3rd Quarter to $80-$85 million, up from $37-$40 million. With one month of the quarter already logged, its possible the company will again exceed the guidance.

The line up

The company has been diversifying the revenue base with increasingly popular titles:

  • Kim Kardashian:Hollywood was launched a few days prior to the quarter, and quickly rose to the top of the charts. The company is cautiously optimistic about the title, predicting it will begin a steady decline.
  • Deer Hunter 2014 was launched at the end of 2013 and has been consistently in the top 100 apps, providing a steady stream of revenue for the company.
  • Dino Hunter: Deadly Shores launched at the beginning of the third quarter based on the same platform as Deer Hunter 2014. It quickly rose to the top 100, but may be challenged to stay in the top 100.
  • Racing Rivals is projected to be acquired by GLUU at the middle to end of August, and will only contribute to half a quarter in revenue. The game has been highly rated for the company and will significantly contribute to the bottom line of the company.
  • Hercules: The Official Game was launched at the beginning of the third quarter, and while there was some initial hype behind it, it has begun to fall from grace.
  • Tap Sports Baseball is scheduled to launch in the second half of the third quarter. The jury is out on how it will be received.

July Performance

In order to meet the guidance of $80-$85 million for the quarter, GLUU would have to earn an average of $869,000 to $923,000 per day from all their titles.

During the second quarter the company brought in $18.7 million from sources other than DH14 and KK:H.

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(Source: company presentation)

If the company can bring in similar numbers through third quarter it would represent $200,000 per day in revenues.

During the month of July, and from the iOS platform, the company took in an estimated $350,000 from just KK:H, DH14, and DH:DS. Android will not likely be as popular as iOS for KK:H, but DH14 and DH:DS have been consistently popular on Android and Amazon.

(click to enlarge)

If the company completes the acquisition of Cie Games, it can expect roughly $100,000 per day in revenue from Racing Rivals from both the iOS and Android platforms.

Summary

Bringing all the revenue estimates together, and looking at July performance the minimum revenue would need to look like this on a daily basis to meet the $869,000 to $923,000 guidance:

  • KK:H revenue: $500,000
  • DH14: $50,000
  • DH:DS: $35,000
  • Cie Games: $90,000
  • All other games (based on Q2 performance): $200,000

Based on the July performance, it looks like GLUU can easily make its earnings estimate, but will likely exceed expectations again. KK:H has been a blockbuster for the company, and will probably easily beat the $500,000 per day in revenue, which will be the driving force for this quarter. Investors should expect GLUU to once again exceed expectations and surpass guidance.

Disclosure: The author is long GLUU. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Glu Mobile: Cautious Guidance Will Set Glu Up For Beating Revenue Again

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