Seeking Alpha

Sell-side defends Glu amid carnage

  • "Glu (GLUU -17%) raised FY14 revenue and EBITDA guidance materially to reflect the ongoing trajectory of [Kim Kardashian: Hollywood], but given low visibility, Glu is also factoring in an assumption that KKH will fall in the ranks over the next several months," writes Piper's Michael Olson, discussing the guidance that (though well above consensus) has sparked a massive selloff due to high pre-earnings expectations.
  • Olson is still reiterating an Overweight. In addition to being upbeat about the Kardashian game, he notes recent releases "have shown a pattern of version-over-version improvement in top grossing rankings, suggesting [Glu] has created a better 'formula' for improving monetization strategies."
  • Needham's Sean McGowan also likes how Glu is expanding its list of top-grossing titles, and calls the company well-positioned to beat guidance. Cowen's Doug Creutz calls the Cie Games acquisition (expected by Glu to contribute ~$16M in 2014 revenue) "an attractive addition to what is becoming a diverse portfolio of hit titles."
  • Shares still +52% from where they traded before the Kardashian game launched.
  • Q2 results, guidance/Cie announcement
Comments (17)
  • EternalOptimist
    , contributor
    Comments (29) | Send Message
     
    Today's sell-off is amusing for anyone who has been watching this stock over time. If you just jumped on the boat in the last week or so, I'm sorry. Hang in there at least through next earnings, and you will be rewarded.
    31 Jul 2014, 02:47 PM Reply Like
  • John Bhakdi
    , contributor
    Comments (14) | Send Message
     
    Everyone with a calculator and 101 knowledge on M&A, valuations, multiples, etc. gets at this point that Gluu is a PT $10 if you are very conservative. If you are optimistic, it's $15-$20. Currently, it's a company that trades at 1.5x 2015 revenues if we assume 0% YoY growth.

     

    Fact is the Gluu has shown consistent growth, currently at 100% YoY, and benchmarks trade at a 3x revenue multiple with MUCH lower growth.

     

    At 10, we would value Gluu like it's benchmarks, even though they grow less, have fewer games, weaker pipelines, and have a much higher market cap.

     

    At 5.8, I don't even know what to say other than this is one of the most unbelievable market inefficiencies I have seen in a long time. With all facts on the table, it escapes my comprehension how so many people with obviously significant market impact can have so little understanding of basic company valuation.
    31 Jul 2014, 02:47 PM Reply Like
  • WaveRider007
    , contributor
    Comments (641) | Send Message
     
    Maybe some people are calculating valuations differently based on current numbers and not future expectations. This is what separates the people that took 101 courses and those that presented a dissertation based on their own research.
    31 Jul 2014, 03:16 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2473) | Send Message
     
    Valid theory, Wave Rider. In 2013 I calculated MU's forward EPS to be several dollars in 2014... Forward PE of perhaps 3x at the time... just over 4x when I posted an article on them. Despite that, it took forever for MU to meander upwards.

     

    Stocks often react based on the here and now.

     

    -Mike
    31 Jul 2014, 03:49 PM Reply Like
  • Sellinpanic
    , contributor
    Comments (679) | Send Message
     
    I don't know what to say, this carnage has really stunned me.

     

    I'm long GLUU since $4 from last autumn so still on the green side. However, GLUU as a stock doesn't seem to get a chance to finally break through the glass ceiling. From all of the stocks out there GLUU is so grossly undervalued that it makes me almost sick to see this kind of sell-off. The market inefficiency against GLUU leads to inefficiency also into our personal portfolios with money tied up from other investment opportunities which could've had produced better results in shorter timeline especially considering this FED driven market.

     

    TWTR makes only one quarter count and off they are to the races, GLUU has multiple quarter guidance hikes, beats consensus by 200% and what happens? Off to the slaughterhouse, it makes me wonder is GLUU after all a damaged stock? It certainly seems so though I would wish the opposite.
    31 Jul 2014, 04:04 PM Reply Like
  • Mike Ao
    , contributor
    Comments (116) | Send Message
     
    If i'm not mistaking, a stock is base on his FUTURE cash flow, not present.
    But, ey, I could be wrong

     

    GLTA
    31 Jul 2014, 04:05 PM Reply Like
  • John Bhakdi
    , contributor
    Comments (14) | Send Message
     
    Well, the truth lies in the future. The past doesn't count in investing. Which leads to the question who we can assess future earnings.

     

    Here is the disconnect: Gluu is treated like an old-school media company, not like a tech company. As a full fledged tech company with Gluu's growth rates, the stock would trade around 30-40. As a media company, stock would trade around 6-7. Because in media, we assume revenue is based on one-hit wonders that always fade and need to be replaced with new (uncertain) onces, wheres tech companies are assumed to have a stable growth-generating tech platform.

     

    So the question is: what is Gluu? Is it Hollywood or Silicon Valley? Lionsgate or Yelp? I believe it's 30% on its way to a tech company, and moving quickly further. It operates on scalable monetization and development platforms. It's more tech company than EA, and EA is more tech company than Lionsgate.

     

    That's why I think a PT of 10 is justified and conservative.
    1 Aug 2014, 02:50 PM Reply Like
  • kevn1111
    , contributor
    Comments (107) | Send Message
     
    I understand Revenue, but revenue without profit and cash flow means little, especially when a company is required to continually come up with new ideas (games) to be successful. How this monetizes not only top line but bottom line is supremely essential to valuation. I need to go look at this before I spout too much more. But if this drops to $5.05 or lower I believe I would take a bite (ie more than a nibble)
    31 Jul 2014, 03:09 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2473) | Send Message
     
    "especially when a company is required to continually come up with new ideas (games) to be successful."

     

    I would just like to point out that this could be applied to any company at all. All companies have to refine things over time (AKA "come up with new ideas") to be the most successful.

     

    Just because games are a foreign concept to most people doesn't mean that GLUU should be treated any differently than any other company that specializes in a given field.

     

    -Mike
    31 Jul 2014, 03:52 PM Reply Like
  • kevn1111
    , contributor
    Comments (107) | Send Message
     
    It is more important here as the lifespan of a game is shorter. Take Apple, you had a multiple year run with the Iphone. It is tapped out now unless they come up with other ideas to your point, but their product cycle, if you will, is not quarter to quarter. Hit games are here then gone. I do like that they can monetize future versions, but still the risk is much higher. Thus you have extreme volatility. Positive rises fast, but any negative slashes the price. If you are in this stock, as I was, you have to live with that and absolutely take your profits on giant runs, doubling, etc as it will come back. Always does. I would rather have the cash right now, but will look for an opportune entry point that I feel has limited downside longterm risk (6 months for GLUU).
    1 Aug 2014, 10:32 AM Reply Like
  • Frogstachio
    , contributor
    Comments (14) | Send Message
     
    "Hit games are here then gone."

     

    kevn, while this is certainly the case with most games, there are notable exceptions. As of today, August 4, KKH is the #4 grossing game app in the Apple store. The 3 games ahead of it are: #1 Clash of Clans, released August 2012; #2 Candy Crush, released November 2012; #3 Game of War - Fire Age, released July 2013. My expectations are not so grand that I believe KKH will remain in the top 5 for years to come, but the fact that it's held a top 5 spot since release, and is the only one of the top grossing apps still near the top in downloads, speaks well for its prospects.

     

    Once it runs its course, I don't think it's inconceivable that Glu merely makes superficial tweaks and releases a nearly identical game featuring the latest hot celebrity (athlete, hip hop, Bieber, whatever . . .) to similar success. The platform is proving successful, and the opportunities are vast.
    4 Aug 2014, 03:02 PM Reply Like
  • DBA+CPA=Arghhh
    , contributor
    Comments (12) | Send Message
     
    My guess is that short term traders expected the Kardashian hype to increase sales immediately in the current quarter. The quarter closed June 30 when Kardashian had only been out for 5 days. Short term traders assumed Kardashian game was really a bust and panicked and sold. I was tempted to sell half my shares yesterday expecting this type of irrational selling, because not many people understand accounting and the quarterly closing of the books process. Since I am mostly long term buyer I didn't sell anything and bought more today.

     

    Most buyers don't have finance, accounting and technology background like Mark Gomes so this type of irrational selling is to be expected.
    31 Jul 2014, 03:19 PM Reply Like
  • Stock Market Mike
    , contributor
    Comments (2473) | Send Message
     
    I hedged with quite a few $6 puts for $0.20. Sold them today for a little over double that.

     

    I was expecting a violent move of some sort. ;) If it had been upward, $0.20 wasted would've been the least of my problems.

     

    -Mike
    31 Jul 2014, 03:55 PM Reply Like
  • kevn1111
    , contributor
    Comments (107) | Send Message
     
    Well played sir.
    1 Aug 2014, 10:33 AM Reply Like
  • Hayden James
    , contributor
    Comments (3) | Send Message
     
    I'm still up even after hilarious emotional sell off. I increased positions today, Gluu as of today is a stronger stock with less flaky holders.
    31 Jul 2014, 04:38 PM Reply Like
  • thestockbroker
    , contributor
    Comments (544) | Send Message
     
    Even though the stock looks really bad today, only folks who bought after 7/9 (3 weeks ago) are down, it's not like the stock did a round trip back to where it was before between late April and late June at under $4, if you're actively trading make or lose I'm not concerned for you, if you're an investor than you're not panicked and are looking to add to your position if you didn't already.
    31 Jul 2014, 07:31 PM Reply Like
  • rafruano
    , contributor
    Comments (115) | Send Message
     
    Wow, couldn't of said it better myself! To all of you, I say, Exactly! to the point that I have nothing to say, other than...Been long Stayin long!
    31 Jul 2014, 08:46 PM Reply Like
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