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This Small-Cap Stock Is Beating the Market Crash, and It May Keep Doing So

By Harsh Chauhan - Mar 25, 2020 at 12:34PM

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This little-known mobile gaming company provides a service that comes in handy when you need to kill time at home.

The COVID-19 outbreak has rattled stock markets, economies, and businesses around the world as governments have advised citizens to stay at home in a bid to slow the spread of the pandemic. However, mobile gaming specialist Glu Mobile (GLUU) has managed to escape the bloodbath on the stock market so far.

Glu Mobile stock has managed to hold its ground, which is especially impressive compared to the beating that the broader market has taken. The bummer is that the growth momentum that Glu had gained in February after its latest round of results isn't there anymore, which isn't surprising. But the mobile gaming specialist may prove to be a good stock to hold in these trying times, as demand for its games may spike thanks to social distancing and people staying at home.

GLUU Chart

GLUU data by YCharts

The mobile gaming industry benefits from coronavirus-induced lockdowns

App analytics firm Sensor Tower reports that global downloads of mobile games spiked 39% in February. China was one of the key drivers behind this jump, with Apple's app store in the country reporting a 62% increase in game downloads.

A similar trend is being seen in India, where the government has started enforcing virtual lockdowns in affected areas and just issued a 21-day stay-at-home order for all 1.3 billion of its populace. Games2Win -- one of the largest game publishers in India -- reports that the number of people playing its games has shot up to 1.5 million a day. That's higher than the company's usual daily users of 1.1 million to 1.2 million people.

Another publisher in India reports that it is witnessing a 3x surge in gaming traffic, and also added that the number of game plays in Italy has spiked 70%. All of this indicates that people are resorting to mobile games either to kill time or to take their minds off work while working from home. This could turn out to be a tailwind for Glu Mobile and positively impact the company's upcoming results thanks to its recent game launches.

Girl playing game on a mobile phone.

Image source: Getty Images

Glu Mobile could be a good bet during these challenging times

Glu Mobile ended 2019 on a high note. The company's guidance for the full year calls for bookings growth even in the absence of any new game launches. Now that the novel coronavirus pandemic is forcing people to remain indoors, it may be able to beat that forecast.

More importantly, Glu recently updated one of its popular titles. The company has just launched MLB Tap Sports Baseball 2020 as the latest update to its Tap Sports Baseball franchise, which has seen more than 40 million downloads over the years. The franchise recorded 21% bookings growth in 2019. Glu will be hoping to sustain that momentum as it expands the title to more than 100 new countries.

Meanwhile, Glu is expected to launch Disney Sorcerers Arena shortly, a title for which it had started taking pre-registrations last month. This title will see Disney and Pixar characters battle against each other in both single-player and player-vs.-player formats, and it could help Glu attract more users given the popularity of the Disney name.

Apart from these launches, two more Glu titles are expected to hit the market this year.

Some more positives

Glu Mobile already predicts a drop in costs this year. It estimates marketing and acquisition expenses of $110 million, compared to last year's outlay of $118 million. This should help Glu boost its margins further in the coming quarters, just as it has been doing over the past few years.

GLUU Operating Margin (TTM) Chart

GLUU Operating Margin (TTM) data by YCharts

What's more, Glu Mobile's balance sheet appears to be in good stead. The company is sitting on $127 million in cash and has less than $41 million in debt, while its free cash flow has also been heading north over the past couple of years.

All in all, Glu Mobile could turn out to be a good pick in these trying times. It provides a service that can be consumed while staying at home, and demand for the same is reportedly rising during the COVID-19 outbreak.

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