Glu Mobile Inc.: This Mobile Gaming Stock Deserves a Look

Major Upside Ahead for Glu Mobile Stock?

In this day and age, small-cap tech stocks tend not to be the safest bets. The tech industry is known for being fast-changing, and even the most established players have to work hard to keep their relevance.

That’s why, even though some small tech companies possess solid growth potential, their shares can be very, very volatile.

One such company is Glu Mobile Inc. (NASDAQ:GLUU), a mobile game developer headquartered in San Francisco, California.

Founded in 2001, the company offers a diverse portfolio of award-winning titles, such as Cooking Dash, Covet Fashion, Deer Hunter, Design Home, Kim Kardashian: Hollywood, and MLB Tap Sports. These games are available on various mobile platforms, including the “App Store” (for “iOS”) and “Google Play” (for “Android”).

With a market capitalization of less than $780.0 million and shares trading at less than $6.00 apiece, Glu Mobile Inc. doesn’t seem like a big player in the industry.

And as I said, these smaller tech stocks can make some wild swings. Just take a look at Glu Mobile stock’s performance so far this year and you’ll see what I mean.

Glu Mobile Inc. (NASDAQ:GLUU) Stock Chart

On its first trading day of 2019, GLUU Stock closed at $7.76 per share. It quickly went on a strong rally, soaring as high as $11.75 in April.

But the momentum did not last long, and the stock started to pare those gains in May. Then, after a massive tumble at the beginning of August, Glu Mobile stock fell deep into the doldrums. Today the company trades around $5.30 per share.

Chart courtesy of StockCharts.com

Still, I wouldn’t cross GLUU stock off my watch list just yet.

You see, the massive drop in Glu Mobile stock in August was due to an earnings report. But if you take a closer look, you’d see that the situation at this mobile gaming company might not be as bad as its share price performance suggests.

According to that earnings report, Glu Mobile generated $95.5 million of revenue in the second quarter of 2019. That was a 5.9% increase year-over-year. (Source: “Glu Reports Second Quarter 2019 Financial Results,” Glu Mobile Inc., August 1, 2019.)

For a mobile game publisher, one of the key performance metrics is bookings. This is basically the amount of money that players committed to spending in games in a given reporting period (the actual spending may come in the future).

In the second quarter, Glu Mobile’s bookings totaled $101.9 million, up 2.5% from a year ago.

The business became more lucrative, too, as the company’s gross margin expanded by more than 200 basis points year-over-year to 64.6%.

The best part is, Glu Mobile Inc. achieved a net income of $2.5 million in the second quarter of 2019. This represented a huge improvement because, in the year-ago period, it incurred a net loss of $4.4 million.

Analyst Take

All these things look pretty good, right? But as we know, investors weren’t exactly pleased when they saw the earnings report. The reason lies in the guidance.

For full-year 2019, Glu Mobile’s management expects the company to deliver total bookings of $406.0 to $410.0 million, a range that is below Wall Street’s expectation of $447.2 million.

I want to point out, however, that last year, Glu Mobile Inc.’s bookings totaled $384.6 million. Therefore, even the lower end of management’s guidance range would translate to a 5.6% year-over-year growth rate.

And don’t forget, by setting out a more conservative bookings target, Glu Mobile may have a better chance of beating that target. Add in the growth potential of the mobile gaming industry and GLUU stock could make a comeback.