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Why Glu Mobile Stock Dropped 16% in August

By John Ballard – Sep 2, 2020 at 3:38PM

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The mobile game maker missed earnings estimates, triggering a sell-off, but there's more to the story.

What happened

Shares of Glu Mobile (GLUU) slid 15.9% last month, according to data provided by S&P Global Market Intelligence. The mobile game maker reported second-quarter earnings results on Aug. 4 that missed analysts' revenue and earnings estimates, sending the shares tumbling for the month. 

Market participants were expecting the company to report revenue of $165.3 million, along with a profit of $0.08 per share. Glu fell shy of those estimates, with revenue coming in at $133.3 million, with a loss of $0.05 per share.

A woman playing a mobile game at home.

Image source: Getty Images.

So what

Sometimes the market focuses too much on quarterly results and loses sight of the big picture. The headlines showing Glu Mobile missing estimates cast a shadow over the stock, but the details from the earnings report reflect a company that is poised to perform well for investors.

In the second quarter, revenue increased by 40% year over year and bookings surged 79%. Glu's three growth games, Design Home, Covet Fashion, and Tap Sports Baseball, all delivered record quarters in bookings. Plus, Glu's celebrity lifestyle game, Kim Kardashian: Hollywood, along with the recent release of Disney Sorcerer's Arena, contributed significantly to the company's growth in the quarter. 

Now what

Glu expects to generate approximately $40 million in free cash flow for the full year, ending 2020 with about $325 million in cash and no debt. Management is looking at potential acquisitions that could enhance its game development pipeline and grow profits going forward. 

What's more, Glu has new releases in development, including Deer Hunter World, a new Tap Sports Baseball 2020 version, and P3 from its Crowdstar studio that also makes Design Home

Management expects bookings for Design Home and Covet Fashion to be down in the third and fourth quarters compared to the second quarter as the shelter-in-place effects fade, but the upcoming releases and efforts to expand its user base this year put Glu Mobile on better footing than its recent stock performance would suggest. 

During the second-quarter conference call, CFO Eric Ludwig said, "It's too early to provide a specific 2021 bookings growth figure, but we believe that we will be set up to grow at or higher than the Western mobile market."

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

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