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Time to Buy the Crash in Glu Mobile Stock?

By Harsh Chauhan – Jun 28, 2019 at 2:30PM

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The mobile gaming specialist has catalysts.

Glu Mobile (GLUU) stock has been clobbered on the market over the past couple of months after starting the year on a terrific note. The mobile gaming specialist looked all set to sizzle once again thanks to its strategy of developing games that can generate sustainable streams of revenue for long periods of time. But with half of the year now firmly in the rearview mirror, Glu stock has failed to live up to its early promise.

Let's see what went wrong and if Glu is capable of turning things around in the second half of the year.

Woman lying on floor holding her smartphone, looking at the screen, and smiling.

Image Source: Getty Images.

Looking past the plunge

Glu Mobile put the wrong foot forward in May when it delivered mixed first-quarter results. That was enough to send the stock spiraling and erase all the gains that it had made so far this year.

Glu missed Wall Street's bottom-line expectations and the company's guidance for bookings in the current quarter also fell short of analyst expectations. Glu Mobile expects bookings between $100 million and $102 million for the second quarter, which fell slightly behind the consensus estimate of $107 million. If that was not enough, major Glu stockholder Tencent decided to offload a quarter of its stake in the mobile gaming specialist.

Investors quickly panicked at the sight of impending weakness, but a closer look suggests that the weakness could be short-term in nature, because the company has some concrete catalysts that will help it bounce back. Moreover, Glu's results were not all that bad.

Glu's revenue jumped 18% annually during the quarter, and it broke even on the bottom line as compared to the prior-year period's loss of $0.05 per share. What's more, Glu raised its full-year revenue guidance to $450 million, at the midpoint, up $10 million from its prior forecast.

Glu stock didn't deserve such a beating, which is why now would be a good time to load up on the stock.

It's time to buy

Glu Mobile recently launched its much-awaited WWE Universe game, which has been developed as part of a multiyear agreement with WWE. This game has been developed by the same studio that Glu used for developing the highly popular Tap Sports Baseball franchise, which saw a 49% increase in bookings in the first quarter.

The good news is that the title is gaining strong early traction. On Glu's latest  conference call with analysts, CEO Nick Earl pointed out that "We have increased confidence that WWE has all of the elements to attract and retain a global audience year-round."

So Glu is hoping to replicate the success of franchise-based titles such as Tap Sports Baseball with WWE: Universe, though this is not the only title slated for launch in 2019. Glu investors can expect Disney Sorcerer's Arena, a game developed in partnership with Disney that includes characters from Pixar, to turn up the heat when it is launched in the next couple of months.

Another Glu title that will hit the market soon is Diner DASH Adventures. The company expects that all three of its new games will be live by August, so don't be surprised to see Glu delivering a better-than-expected outlook the next time it reports earnings.

This is why it makes sense to take advantage of the crash in Glu stock, since it is currently trading at an attractive valuation of at 22 times earnings estimates, which is well below its five-year average of 80. Given that Glu's top and bottom lines have been moving north and have the potential to get better, now looks like a good time to bet on the stock and build a long position before it starts rallying again.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings and Walt Disney. The Motley Fool has a disclosure policy.

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