Glu Mobile: All Systems Go But The Chart

Summary

• Glu Mobile boosted 2020 guidance to $507.5 million.
• The company raised $138 million via a secondary offering at $9.25 per share.
• The mobile game developer has a strong history of using cash to purchase gaming assets on the cheap.
• The stock is a bargain at an EV/S multiple of 2.3x.
• This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

While Glu Mobile (NASDAQ:GLUU) is still struggling at a breakout above $10, the company has made a couple of significant announcements hinting at a bright future ahead. The mobile game developer raised the guidance for Q2 while also raising funds for a potential acquisition. My investment thesis is bullish on the stock, but the chart suggests a struggle pushing through resistance here as the market rolls out of the stock benefiting from stay-at-home orders.

Bookings Boost

Back on May 29, Glu Mobile boosted Q2 bookings by $12.5 million to $165.0 million at the midpoint. The mobile game developer now projects 2020 bookings of $507.5 million. The company now expects a substantial x% boost to bookings from the $423.3 million produced in 2019, but the guidance includes no additional bookings boost beyond June.

The stock didn't get a huge boost due to a general benefit assigned to the Q2 stay-at-home boost. The fear in the market is that gamers are about to head outside for activities restricted over the last couple of months.

The fears have some merit, considering the market doesn't like peak sales metrics. Glu Mobile is predicting bookings deceleration exiting the year with the following bookings trends:

• Q1'20A: $106.5 million, up 15%
• Q2'20E: $165.0 million, up 62%
• 2H'20E: $236.0 million, up 3%

The 2H guidance assumed in the metrics provided by Glu Mobile has substantial upside potential. First, the company has previously guided to an additional $10 million bookings boost from Tap Sports Baseball 2020 with MLB coming back this year. Right now, the sports league is the only one without a plan to return to play this year. Second, the guidance doesn't include any estimates for new games: Originals and Deer Hunter World.

Glu Mobile could easily end up with 10+% bookings growth in the 2H of the year from just a return of MLB and a small boost from the new releases. Investors should plan for the mobile game developer to exceed guidance here.

Secondary

On June 3, Glu Mobile priced a secondary offering of 15.0 million shares at $9.25 per share. The company granted the underwriters the option to purchase 2.25 million shares for a total offering of 17.25 million shares.

The company expects to raise gross proceeds of $138.75 million. Considering Glu Mobile forecasts having a cash balance ending 2020 of $155 million for a total cash target exiting the year at over nearly $300 million, one can view this deal as foreshadowing an acquisition.

Glu Mobile suggests the offering has no designated uses, but the company is likely now in pursuit of new games. The stock wasn't exactly expensive, so the company will need to utilize the cash or the move was dilutive to the existing 168 million shares outstanding.

Even after this really, Glu Mobile trades at a 50% discount to both Electronic Arts (EA) and Zynga (ZNGA). Both of those gaming stocks trade at about 4.5x EV/S targets for 2021, while Glu Mobile is only at 2.3x before this secondary.

Data by YCharts

Back in 2016, Glu Mobile bought Crowdstar for only $45.5 million. The acquisition gave the company Covet: Fashion and the now very successful Design Home game. Those two games alone accounted for $63.9 million worth of bookings in Q1.

Takeaway

The key investor takeaway is that Glu Mobile is an incredible steal here at $9. The company is flush with cash and has a strong history of turning solid games into big winners via acquisitions. Investors should use the weakness to build positions in the stock with a look towards an eventual breakout above $10.

Analyst’s Disclosure: I am/we are long GLUU, ZNGA. 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.

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.