Glu Mobile: Recovery Is On Its Way
Summary
- Throughout 2017, Glu Mobile’s stock has increased in value by more than 80%, while its revenue was also up by more than 40% Y/Y.
- The company has a strong lineup of products for 2018 that have every chance to create shareholder value in the upcoming quarters.
- Right now, Glu Mobile’s stock has all the chances to recover and surpass its 52-week high level, if the management will continue to impose strict financial discipline.
- I'm long Glu Mobile.
Since beginning of the year, Glu Mobile (NASDAQ:NASDAQ:GLUU) has received a number of buy and hold analysts’ recommendations from the different advisory firms, which align with my own believing that the company is undervalued at the current market price and has a great potential to create shareholder value and outperform its previous results in 2018. In the upcoming months, Glu Mobile plans to release a variety of popular gaming titles that are expected to receive a warm welcome from the public and are going to be the main drivers of growth for the current fiscal year.
After the appointment on the new management in late 2016, Glu Mobile started to slowly improve its business performance, which resulted in the growth of its major financial metrics. Nick Earl, who became the new CEO, redefined the strategy of his predecessor and slightly reorganized the company’s gaming portfolio. One of his goals was to focus more on the company’s core businesses and improve its gaming portfolio, which he managed to do, as the recent earnings report for the FY17 showed that the bookings were up 50% Y/Y, while the revenues in all four quarters combined were also up by more than 40% in comparison with the same periods last year.
In addition, investors saw that their stock is also growing at an accelerated pace, as throughout all of 2017, Glu Mobile shares have increased by more than 80% in value and were trading around 52-week high in mid-December. If we look at the recent company filings, we will see that Q3 and Q4 were record quarters, as all of the major titles were constantly improving their performance thanks to the exponential growth of their bookings. Also, if we look closely at the current gaming portfolio, we will see that the titles from the Growth category are now being the dominant force behind the company’s success, as users become more attached to Glu Mobile’s traditional products.
Source: Glu Mobile IR
Going forward, Glu Mobile plans to establish a stronger presence in the mobile gaming sector, as in the first half of 2018, users worldwide will have the ability to play the company’s core sporting franchises like TSB 2018 and WWE: Universe, while in the second half of the year we should expect to see a wide variety of Growth, Evergreen and Catalog titles, such as Titan World, Dash Town, Social Casino and others.
In addition, last month Glu Mobile announced that it entered into a partnership agreement with Disney (NYSE:DIS) to create a new IP based on the characters from the Disney and Pixar franchises. Thanks to the Disney’s brand recognition, I don’t think that Glu Mobile will have any problems with marketing their new game and we should wait for more announcements to come out regarding the upcoming title to make any predictions about its sales.
From a financial standpoint, Glu Mobile has also made a significant progress in improving its balance sheet and imposing strict financial discipline that already delivers results. In 2017, to cut down its losses, Glu mobile decided to close its studios in Moscow, Beijing and in other US cities, while at the same time it expanded its outsource operations in India and scaled its headquarter potential in San Francisco. Such a centralization of operations could suggest that the company plans to become more efficient, as the COO & CFO Eric R. Ludwig has an ambitious plan for the company to become free cash flow positive in 2018.
Source: Glu Mobile IR
Looking at the progress that has been made in 2017, I feel cautiously optimistic about the company’s ability to deliver growth and create a shareholder value going forward. I have opened a long position in Glu Mobile back in January of 2017, and recently decided to increase the number of its shares in my portfolio, as I believe that the current management strategy to focus on its core business projects and impose strict financial discipline will continue to improve the performance of the company in the long-term. Investors have long ago waited for their stock to rebound to its 2014-2015 levels, when the release of Kim Kardashian: Hollywood made Glu Mobile shares to appreciate in value in the short span of time, and it seems that the company’s stock now has all the chances to be trading in the $5 - $6 per share range by the end of the current year.
For the FY18, Glu Mobile expects to have bookings in the range of $325M to $335M, which is higher from the actual FY17 bookings of $320M. In addition, the company has an ambitious plan to increase its Adjusted EBITDA margin to 15%-20% in the long-term, but for that to happen, the management will need to make sure that every product that they launch is of high quality and has a potential to add new users on a recurring basis. As for now, I will continue to hold my shares in the company and will be waiting for the upcoming earnings results to decide whether to increase my position or to fully exit it at a small profit.
This article was written by
Analyst’s 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.
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