GLUU stock forecast: Avoid Glu Mobile

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Summary:

  • The Q1 2018 earnings report said Glu Mobile made $81.4 million in revenue, up 43.3% year-over-year.
  • Unfortunately, I Know First, which has a good history of predicting the one year stock movement of Glu Mobile is still bearish on this company.
  • This is likely because Glu Mobile again posted a net quarterly loss. This is a big turn-off. Glu Mobile had a big surge in revenue and yet it remains unprofitable.
  • It is also depressing that Glu Mobile continues to suffer declining number of daily and monthly active users.
  • Further, Glu Mobile obviously can’t come up with original games anymore. It has lost its mojo. A stagnant-minded management is a turn-off to investors.

Glu Mobile’s stock (GLUU) shot up by 6.61% after it made its Q1 2018 earnings report. Many investors liked it that Glu Mobile posted a big beat on revenue estimates. Glu grossed $81.4 million, up 43.3% year-over-year. My takeaway is you should avoid joining the bull herd for GLUU. What’s the point of Glu making bigger quarterly revenue when it remains unprofitable?

Record bookings and quarterly revenue numbers do not ease the persistent pain that Glu Mobile again posted a net loss of $7.2 million for the first quarter of this year. Glu continues to operate with a negative free cash flow. The Q2 and full year guidance numbers made by the management also conveniently avoided mentioning a positive profit. Read between the lines – Glu’s management is confident that the company will end up with a net loss in FY 2018.

This continuing unprofitability trend from Glu Mobile is likely why I Know First has a bearish one-year forecast for GLUU. Based on the 0.64 predictability score, I Know First has a good track record of correctly predicting the 12-month movement of GLUU. I Know First has a bearish 1-year market trend forecast score of -27.27 for Glu Mobile. I therefore caution investors to stay away from GLUU.

Declining Number of Active Users

 The other painful headwind for Glu Mobile is its declining number of daily and monthly active users. It is strong indication that Glu doesn’t have new hit games or decent live ops programs that can attract more paying customers. The Evergreen tactic of Glu is going to dry up if it doesn’t come up with new games and better player-engagement methods.

Going forward, the future prosperity of Glu Mobile requires it to recruit more daily and monthly active users. There is a limit to how much money you can extract from current paying players of your games. You want fresh recruits whom you can monetize. To do that, Glu Mobile needs proper marketing of its new games. The focus should also be on titles that are free from third-party licensing fees.

Glu should focus on 2018 releases of Racing Rivals, Titan World, and Dash Town. They aren’t burdened by royalty payments to content owners like Tap Sports Baseball 2018 and WWE: Universe. It is also sad to see that Glu doesn’t have a Disney (DIS) licensed mobile game for the 2018 pipeline. Disney and Glu signed a licensing deal last February and yet there’s no mention of any game coming from it. Glu obviously paid the initial licensing fee to Disney earlier this year. However, it looks like Glu is not yet ready to release a Disney-themed game before 2018 ends.

Glu Mobile’s refusal to enable Skillz’s real-money tournaments in its games is also a fat headwind. Glu has a several skills-based games that can qualify for Skillz’s platform but the management chose to ignore this monetization opportunity.

Glu’s future will continue to depend on in-app purchases on in-game advertising. Unfortunately, the advertising business of Glu is also a stagnating/declining endeavor. This is again likely due to its declining number of active daily and monthly users. Growing an advertising business requires Glu to increase its number of gaming customers.

 Conclusion

 There is no compelling incentive to go long GLUU right now. Investors are better off using their money to invest in larger and growing gaming firms like Tencent (TCEHY) and NetEase (NTES). Glu’s 5-year history has been hampered by its always-negative operating profit, annual net losses, and persistent negative free cash flow. I don’t see Glu reversing this odious trends this year or in 2019.

I rate GLUU as a sell. The recent hike in GLUU’s price is fueled by the unrealistic optimism of many investors. I will not join this herd. Glu Mobile’s revenue growth is inorganic. It came from acquisitions. Glu’s purchase of Crowdstar is why it has positive annual revenue growth. Crowdstar’s Design Home game is responsible for $34.3 million of Glu’s Q1 bookings of $86.3 million.

A game publisher that can no longer create in-house games which could become successful has a stagnant management/vision. I repeat, please avoid GLUU.

Past I Know First Forecast Success with GLUU

I Know First has made accurate predictions on GLUU in the past, such as its bullish article published on August 27, 2017 . In the article, Tencent’s U.S. release of its hit Chinese mobile MOBA game could lead to Glu Mobile being the publisher for it for North America and Latin America. In addition, How Garena (partly-owned by Tencent) is likely to become the publisher for South East Asian countries. Glu Mobile is also partly-owned by Tencent. For the 3 months period since the date of the forecast, the stock returned about 25%.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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