A Few Reasons Why Glu Mobile is a Buy on the Drop

Shares of Glu Mobile (GLUU) have traded over $4 for the larger portion of 2015. However, the stock tanked to near $3 after the company slashed its guidance for the fourth quarter. The company’s Q3 results were a lot better than what analysts were expecting, but investors focused on the company’s guidance and punished the stock.

Glu Mobile sees Q4 revenues coming to $50 million-$52 million, significantly below expectations for $94.2 million, and EPS of -$0.02 to -$0.03, below consensus of $0.06 earnings per share. For the full year, it's forecasting revenues of $234.3 million-$236.3 million; again well below consensus of $273.4 million.

While the revised guidance is bad news, investors may have over reacted as Glu Mobile’s management has a habit of giving conservative guidance.
The company has lost almost a quarter of its market share due to the guidance cut, but the company’s product pipeline is still strong. It wouldn’t be surprising if Glu Mobile manages to beat the guidance for the fourth quarter, which is why the stock looks like a certain buy at this point in time.

The revision is guidance has come because of delay in the launch of certain important titles. The company had planned to release titles like MX Rivals and Kate Perry Pop during the beginning of the third quarter. However, the company didn’t deliver on its promise, as a result of which, it had to slash its guidance.

The late releases, however, are only short-term headwinds as Glu Mobile is all set to launch these games before the end of January. Given the hype surrounding both of these titles, I will not be surprised if they are well received among the mobile-gamers.

In addition, the company should also see strong sales due to the success of the iPhone 6S. The company generates majority of its revenue from the App Store and the soaring sales of the iPhone 6S and the iPhone 6S Plus should help it overcome the recent weakness. Moreover, holiday season is usually the strongest for both Apple and Glu Mobile. So, investors can expect the company to beat its own guidance in the fourth quarter.


As explained above, the chances of Glu Mobile beating its own estimate for the next quarter are high. The stock should soar if that happens, which makes it a good buy at present levels. Glu Mobile is trading at a very cheap valuation and with many of its big-name titles on the way, I think the stock should regain its momentum.

Published on Dec 9, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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