Why Glu Mobile, Inc. Stock Plunged Today

The free-to-play games company dropped after a disappointing quarter.

Steve Symington
Steve Symington
May 4, 2016 at 6:57PM
Technology and Telecom

Glu Mobile reduced 2016 guidance partly because of "softness" following the launch of Kendall and Kylie, IMAGE SOURCE: GLU MOBILE INC.

What: Shares of Glu Mobile (NASDAQ:GLUU) fell nearly 14% Wednesday after the free-to-play mobile game company announced reasonably solid first-quarter 2016 results, but followed with disappointing guidance.

So what: Quarterly adjusted revenue fell 13.5% year over year, to $54 million, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) swung to a loss of $3.8 million, compared with a $3.9 million profit in last year's first quarter. Based on generally accepted accounting principles, that translated to a net loss of $8.6 million, compared to net income of $1.1 million in last year's first quarter. On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation, Glu Mobile's net loss was $4.2 million, or $0.03 per share, compared with net income of $2.1 million, or $0.02 per share this time last year.

Analysts, on average, were anticipating an even wider adjusted net loss of $0.05 per share on revenue of just $48.2 million.

"We are pleased with our first quarter execution as we exceeded expectations across all key metrics," added Glu Mobile CFO Eric Ludwig. "The combination of Glu's strong balance sheet, robust line up of new titles, and reduced fixed cost structure positions the company to enhance shareholder value longer-term."

Now what: For the current quarter, however, Glu Mobile anticipates adjusted revenue of $46 million to $49 million, which should translate to an adjusted net loss between $6.7 million and $8.2 million, or between $0.05 per share to $0.06 per share. By comparison, analysts' consensus estimates predicted second-quarter revenue of $59 million would result in an adjusted net loss of $0.04 per share.

In addition for the full year, Glu Mobile expects adjusted revenue between $215 million and $235 million, and an adjusted net loss between $14.9 million and $20.9 million, or an adjusted net loss per share between $0.11 and $0.16.  For perspective -- and despite today's beat -- this is a reduction from Glu Mobile's guidance in February, when it told investors to expect adjusted revenue between $250 million and $275 million, and a net loss per share between $0.08 and $0.14.http://phx.corporate-ir.net/phoenix.zhtml?c=207033&p=irol-newsArticle&ID=2135400 

During the subsequent conference call, Ludwig elaborated that the reduction is due to a combination of "softness on the tail of the Kendall and Kylie game, as well as lowering second half 2016 new title contribution."

Of course, there's always the chance Glu Mobile's guidance could prove conservative should it see the pace of downloads of its new games outperform. But it also doesn't help that shares already skyrocketed nearly 70% in February in part because of the early success of its Kendall and Kylie title. In the end, this reinforces my skeptical stance regarding the relative unpredictability of the free-to-play game space. For now, that's why I'm personally content continuing to watch Glu Mobile's progress from the sidelines.