Glu Mobile (NASDAQ:GLUU) is a developer of games for mobile and tablet devices. Shares were skyrocketing since mid-2018 but the bull run ended when the company released disappointing Q2 guidance at the beginning of May. Glu stock was knocked.
But with a market cap of $1.06 billion and shares selling for $7.28 USD, Glu shares remain firmly on the radar as the opportunity here is intriguing.
Shares took a dive at the beginning of May when the company released guided Q2 2019 bookings revenue that was below expectations. Since then, Glu stock has dropped roughly 35%. The reason for the lowered guidance was the increased User Acquisition (UA) spending from Glu’s major competitors. This made Glu move its UA spending away from important titles such as Design Home.
Glu Mobile CEO Nick Earl detailed the issue:
“… Starting in early February, we saw a significant uptick in aggressive UA campaigns from two casual game publishers. This had the effect of driving up CPI costs for Design Home, Covet Fashion, and Kim Kardashian: Hollywood. As a result, we’ve dialed back our UA spend for our female-centric titles, and this has impacted bookings for these titles in the first half of 2019…”
The guidance for Q2 2019 was $102 million—$5 million below analyst expectations. Glu stock fell dramatically and wasn’t rescued despite the company’s increased yearly bookings guidance of $10 million.
Prior to the Dip
Glu stock was on a bull run since 2018, thanks to the success of its games Design Home, Tap Sports Baseball, and Covet Fashion. Share value more than doubled across the year due to strong growth in these titles.
“Without any help from new games, Glu was able to guide double-digit growth quarter after quarter.”
The idea of new games bringing more growth only drew further excitement from investors. The current line was performing so well, that the company could push out release dates of new games, and Glu stock never floundered on the news. With growing games cames growing revenue, and this turned into growing stock price.
Investors need to now ask if current prices reflect a true value for Glu stock. Did hype also help shares to move earlier in the year? Possibly. Will they retain those heights of approximately $12 per share again?
Who knows. From current prices, analysts do see further upswing ahead; Glu stock has an average rating of “BUY” and a price target of $11.50 USD set by seven analysts covering the stock. However, the short-term trend remains bearish, so perhaps wait this one out for a while.
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