One of the hottest mobile gaming stocks of 2017 and 2018 was a dud in 2019, but this is a new year of opportunities for Glu Mobile (GLUU). Morgan Stanley analyst Matthew Cost initiated coverage of the developer of lifestyle, sporting, and licensed mobile games on Tuesday with a bullish overweight rating. His $7.75 price target is 32% higher than where the stock closed Monday. 

Cost feels that Glu Mobile is on track to deliver better-than-expected earnings in the near future. He expects the mobile app publisher will continue to cash in on its popular franchises as it diversifies its portfolio with a couple of new launches a year. 

Cover art for 10 of Glu Mobile's more popular games.

Image source: Glu Mobile.

Sticking like Glu

Glu Mobile came out of a slump in 2017, becoming a market darling that soared 88% that year and 122% in 2018. But the company that repeatedly jacked up its guidance during those years went the other way in 2019, and shares slid 25% during an otherwise buoyant period for the market.

The sharpest cut of all came in August, after it slashed its full-year guidance, lowering its 2019 goal from a range of $445 million to $455 million in bookings to just $406 million to $410 million. By November, a touch of optimism was back as it boosted its full-year forecast to the $416.4 million to $418.4 million range, but that was still a far cry from where its guidance was six months earlier. 

The good news here is that Glu Mobile itself continues to grow. Its three largest game franchises -- Design Home, Covet Fashion, and Tap Sports Baseball, combining to account for 77% of its third-quarter bookings -- are still posting double-digit percentage growth year over year. The timing of Morgan Stanley's bullish initiation is also encouraging, as Glu Mobile will report its fourth-quarter results after Wednesday's market close. It's unlikely that Cost would initiate coverage of a stock the day before a telltale financial update unless he was fairly confident that it would be a strong, stock-propping report. 

Mobile casual gamers can be fickle, and the same can be said about Glu's investors given the stock's wild price action over the past three years. However, with app spending still firmly entrenched in the consumer discretionary budgets of millennials and millennials at heart, it's hard to bet against Glu Mobile. A strong report on Wednesday or a strong new game launch later this year could serve to get the shares moving in the right direction in 2020. Glu Mobile's success no longer rests on a single franchise. This week, we'll find out if last year's disappointing performance was a fluke or the new normal.