Glu Mobile: Another Quarter, Another Blowout

| About: Glu Mobile (GLUU)
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On Wednesday evening, Glu Mobile reported Q1 revenue of $47.0M, crushing Wall Street estimates of $39.4M.

Net income came in at $0.06 per share versus the consensus estimate of $0.02, a 200% beat.

Looking ahead to the full year, the company set expectations of $155M-$161.5M for non-GAAP revenue and (versus current Wall Street estimates of $147M).

Since introducing Glu Mobile (NASDAQ:GLUU) to PTT Research and Seeking Alpha readers, the company has been on a tear. On Wednesday evening, that continued, as GLUU reported Q1 revenue of $47.0M, crushing Wall Street estimates (which only called for $39.4M) by an astonishing 19.3%. The Street estimates required 60% annual growth. GLUU delivered 90%.

Earnings followed suit, topping expectations by a wide margin. Net income came in at $0.06 per share versus the consensus estimate of $0.02, a 200% beat.

Unsurprisingly, guidance was conservative (like Apple (NASDAQ:AAPL), Glu management favors setting achievable expectations), Q2 guidance calls for non-GAAP revenue of $30.6-$32.7, bracketing the current consensus estimate of $31.3M. EPS is expected to come in at ($0.05)-($0.06) versus the consensus of ($0.02). Part of this is driven by the decision to hold back the launch of "Contract Killer 3". Traditionally, GLUU has increased the profitability of its games by holding them back, so this is business-as-usual.

Looking ahead to the full year (which is more important), the company set expectations at $155M-$161.5M for non-GAAP revenue and (versus estimates of $147M) and EPS of $0.02-$0.03 (versus estimates of $0.02).

At the high end of 2014 expectations (which should be assumed, given management's history of conservatism), year over year growth will be 53%. Yet the company continues to trade at a mere 2x revenue multiple. Back of the napkin math would call for a revenue multiple of something closer to 5x. Accordingly, our price target remains $9.42 (triple our initiation price of $3.14).

As it stands, the stock has already risen 30% since our initiation (just 6 months ago, on October 24, 2013) versus a 0% return for the recently-beleaguered Russell 2000.

Sifting through all of the moving parts (both positive and negative), I believe GLUU's progress during the March quarter was nothing short of fantastic. More importantly, everything I heard from management represented a great sign of things to come in the years to come. Despite delivering back-to-back blowouts, GLUU shouldn't be viewed as a quarter to quarter story. I believe it's an even better multi-year story. From that standpoint, Q2 will be "okay," but 2014 growth is set to exceed 50% organically.

On top of that, GLUU is acquiring PlayFirst (makers of "Diner Dash" -- I recommend buying/trying it out!) to further accelerate growth via inorganic means. This is perhaps the best news of the quarter in my mind. Becoming an acquirer (a.k.a. consolidator) could be as potent for GLUU as the creation of its monetization platform.

I believe that GLUU wants to apply its new-found monetization capabilities to companies that don't have the same capabilities. It's a sustainable recipe for printing profits and a fantastic recipe for long-term success (via accretive acquisition). The market is flooded with great game makers who don't know how to make money on their games. This gives GLUU a bountiful source of future games (and therefore growth).

In anticipation of this, the company filed a $150 million shelf. This means that it might raise money in the near future. Stocks generally fall on this news, but I firmly believe that shelf registrations need to be assessed on a case by case basis. In this case, the shelf is specifically geared toward making attractive acquisitions (per management's comments on the conference call).

Market consolidators (as GLUU appears poised to become) have historically trounced the stock market's average performance. They can grow revenue and earnings much faster by taking other companies' sweat equity and making those companies much more profitable (for shareholders).

In the meantime, GLUU continues to develop its own successful titles. "Dino Hunter: Deadly Shores" will be released soon and follows the Deer Hunter mold of providing gamers with fun hunting-oriented game experiences. I believe there could be many more such games to come. The formula is simple -- hunt something, somewhere, with something. Maybe they'll take my idea and make "Martian Minotaur Hunter," where players hunt minotaur on different planets using Star Wars-type weaponry. Well, maybe not, but you get the point. The possibilities are endless.

In short, GLUU remains a "Gold Mine" (see our ratings methodology, free on PoisedToTriple's website). The recent tech sell-off pulled the stock 30% off of its recent highs, but that was clearly a case of throwing out the baby with the bathwater.

Wall Street analysts have come out in agreement. Northland Securities said, "For the second quarter in a row, GLUU handily beat estimates, with strong outperformance particularly attributed to the continued strength of Deer Hunter 14 (DH14), as well as Eternity Warriors 3 (EW3)."

Northland's price target is $7.50. "We remain buyers of GLUU, especially as it demonstrates 40%+ y/y top line FY'14 growth, but still trades at a ~21% discount to ZNGA." They went on to point out that ZNGA is projecting single digit growth (excluding its acquisition of Natural Motion).

Meanwhile, Needham & Co. raised its rating to Strong Buy and raised its price target to $6. Indeed, one could conceivably argue for a $10 valuation (via a 5x revenue multiple, matching up with its 50% growth trajectory). However, all things come in due time. Thus, I will simply say that "shares of GLUU remain poised to triple."

Disclosure: I am long GLUU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.