Glu Mobile Set To Crush Q1 Guidance

| About: Glu Mobile (GLUU)

Summary

The new celebrity game is a big hit even prior to the official release.

The Kendall & Kylie game brings an additional game into the celebrity theme to test the ability to incrementally grow the concept.

Based on initial success, Glu Mobile is on pace to smash Q1 guidance.

After the failed release of the Katy Perry Pop game, Glu Mobile (NASDAQ:GLUU) sank an incredible amount. The stock fell all the way to a low of $1.98 with the recent market selloff, but my recommendation remained firm that large opportunities existed for a big rebound.

With the release of the Jenner sister game on schedule and faring better in initial markets, the stock soared back over $3.50 prior to the official release of the game on February 18. Now investors have to decide if the stock is worth buying after the big rally in the face of a potential mega hit.

Source: Instagram

Kendall & Kylie Potential

The market has a couple of ways to view the potential of Kendall & Kylie. A hit game could produce the same revenue levels of Kim's game or even leap into the top five grossing games that these days can produce substantially more revenue.

As a recap, Kim Kardashian: Hollywood produced the following revenues in the first few quarters after reaching a top five grossing position for a minimal period:

  • Q2'14: $1.6 million
  • Q3'14: $43.4 million
  • Q4'14: $29.3 million

Considering nearly two years have passed and the top grossing games produce considerably higher revenues these days, the Jenner sisters game has the potential for substantially more upside.

Click to enlarge

Source: Thinkgaming.com

The game has already cracked the top 10 likely ensuring this game matches the revenues of Kim Kardashian: Hollywood. The ability to creep up the list will quickly escalate the revenue totals. At the #7 position, the game would produce $20 million in quarterly revenue from the U.S. iPhones (NASDAQ:AAPL) alone. The #4 position and $500,000 in daily revenues from the U.S. iPhones produce $45 million per quarter.

The revenue total doesn't count the iPad or Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Play revenue in the U.S. in addition to all international revenues.

Kim Kardashian Key

A big key to the success of the Kendall & Kylie game for Glu Mobile is the incremental revenue the game generates for the celebrity lineup. Replacing the slowly declining Kim Kardashian: Hollywood game is a huge success on its own. The ability to attract additional users is where the mobile-game developer will see the stock hit and sustain new highs.

Right after the game rose on the charts after nearly two days of "soft release", the Kim Kardashian game was still grossing in the 27th position on the iPhone in the U.S. With $62,000 in daily revenues on February 17, Glu Mobile clearly wants to keep that revenue stream while adding a top 10 ranking from the Jenner sister game.

Click to enlarge

Source: Thinkgaming.com

To build the celebrity concept into a huge success, Glu wants to see a string of games producing revenues this year. A prime example of the success that the company wants to achieve is the success of King Digital (BATS:KING) with the Candy Crush series. As the above chart highlights, the company had several games in the top grossing charts. Candy Crush Saga produced $824,000 in daily revenues while Candy Crush Soda Saga added another $229,000 plus $123,000 from Candy Crush Jelly Saga.

If Kendall & Kylie maintains above the $150,000 daily grossing level, the stock will soar. For long-term gains, GLUU needs to see the new game hit that level while maintaining over $50,000 on Kim's game. Right now, the game has only seen a minor dip to $59,000.

The stock will hit new highs if these games can maintain strong revenues while bringing on Britney Spears and Nicki Manaj over the summer. Ultimately, the pinnacle would be a successful re-launch of Katy Perry Pop or the Taylor Swift game by December while maintaining these games.

Takeaway

With Q1 guidance of only $47 million, Glu Mobile is set up to crush those estimates. Considering the guidance includes a roughly $11 million sequential decline in revenues, the company likely included virtually zero revenues from the Jenner sisters in the guidance. At this rate, half a quarter could easily produce at least $20 million in revenue and push Glu Mobile towards $70 million for the quarter. With an enterprise value of roughly 1x 2016 revenues that will approach $300 million, the stock is still a buy after the big rally.

Disclosure: I am/we are long GLUU.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.