Can Glu Mobile Bounce Back?

Glu Mobile (GLUU) announced fourth quarter ended December 31, 2015 total non-GAAP revenue of $57.9 million, down 24 percent year-over-year from $76.2 million during the same period last year. The company has also provided revenue outlook for first quarter of 2016 and estimates non-GAAP revenue in the range of $46.0 million to $48.0 million.

Glu declared fourth quarter of 2015 non-GAAP net income of $2.3 million or $0.02 of diluted loss per share, down 81 percent year-over-year from $12.2 million or $0.11 per diluted share in the fourth quarter of 2014.
Moving ahead, the company has provided bottom line guidance for first quarter of 2016 and forecasts non-GAAP net income in the range of $(6.8) million to $(7.8) million or $(0.05) to $(0.06) per weighted-average of outstanding basic share.

The mobile devices games manufacturing company reported continued year-over-year decline in both its top and bottom lines primarily due to greater operating expenditures for the quarter including, some changes in the company’s top management.

Some positives

Glu has continued to illustrate a solid 29.4% CAGR of top line expansion for continuous 5 years in a row coupled with a highly-diversified revenue stream and wide portfolio of innovative games which is expected to drive sustainable long-term company growth.

Further, Glu Mobile has superior revenue diversity with ad revenue acting as a key hedge against CPI expansions. In addition, the company has impressive percentage revenue inputs from key ads available in this industry with minimum exposure to CPI expansions.

The superbly well-diversified gaming portfolio of Glu Mobile allows the company to get extremely diversified revenue contributions from each of its uniquely introduced free-to-play games for the quarter and ad revenue provides strategic hedges against year-over-year growths in CPI.

Glu Mobile is expected to have superior big data analytics capabilities with advanced competence of processing a huge 70 million events per second and consuming 2 billion events in a day, totaling 75 million KPI metrics per day and easily scaling 2 trillion event handling capacity. The mobile platform game development company is continuing to refine game performance by aggressive analysis and testing while optimizing user acquisition, minimizing user conversion and focusing on customer retention. Going forward, Glu is also targeting several long-term growth prospects through global expansion, strategic mobile Ad expenditure with converging eCPMs, implementing quad screen and virtual reality.

Making smart moves  

Glu Mobile has strategically evolved from just being a core gameplay company through growing smartphone business and executing off feature-phone functions to gradually moving into a monetization phase through fresh product introductions comprising nearly 50% of total revenue, proactively investing for healthy top line growth and sustaining fixed operational expenses greater than catalog revenue to steadily entering into the social phase through new introductions comprising of less than 25% of the top line growth, catalog revenue covering fixed operating expenses and popularization of games-as-platforms.

The strategic evolution of Glu Mobile from merely being a major gameplay company to social platform leveraging organization while targeting long-term growth opportunities is estimated to bring in several new and strategic customers, driving notable company’s top line growth.

Glu Mobile is uniquely entering into publishing partnership with Tencent to modernize and westernize WeFire with the company’s popular shooter IP Frontline Commando. In addition, Glu initiated the strategic series A financing for acquiring a smaller stake in Dairy Free Games company and thus, achieved the premium rights to publish the popular game and any of its sequels.

Importantly, the Board of Directors at Glu Mobile recently approved a strategic stock buyback program to repurchase nearly $50 million of its common stock and in line with the company’s continued commitment to deliver attractive shareholder returns.

The planned partnerships of Glu Mobile with other key players in the global gaming industry is believed to further expand the already diversified gaming portfolio of the company, attracting many more new customers and accelerating its top line growth while enabling it to offer attractive shareholder returns through strategic share repurchases and dividends.

Conclusion

Overall, the investors are advised to “Hold” their position in Glu Mobile, Inc. considering the company’s solid long-term growth prospects being supported by several key expansion initiatives undertaken by the company management which is further allowed by notable total cash position of $180.54 million and no debt. However, the profit margin of -2.88% seems disappointing. The PEG ratio of -2.17 signifies no growth but decline compared to somewhat healthy industry’s growth average of 0.96.
Published on Mar 31, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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