Glu Mobile Inc. (NASDAQ:GLUU) has seen a huge move higher. Increased revenue amid the popularity of some of its older games has bolstered the Glu Mobile stock. Now, as it approaches multi-year highs, investors must decide whether Glu can keep increasing its revenue and push the value of the stock past highs not seen since 2015.
Unfortunately for GLUU stock, its trading history has resembled that of its peer Zynga (NASDAQ:ZNGA) rather than more established gaming companies such as Activision Blizzard (NASDAQ:ATVI) or Electronic Arts (NASDAQ:EA). Like Zynga, it surged higher after its IPO only to fall back.
The fallout from a financial crisis took Glu Mobile stock as low as 22 cents per share. It recovered and then came back from a mid-decade slump which took the stock below $2 per share. Now, as it returns to multi-year highs, many wonder what will come next for Glu.
Glu Mobile Stock Outlook Improvements
In fairness, GLUU stock has seen improvement in recent quarters. It missed earnings in Q1, reporting a 5-cent per share loss when a gain was expected. However, Glu still improved from a 17-cent per share loss in the same quarter one year ago.
The company also reported $81.4 million in revenue for the same quarter. This beat estimates by $7.64 million and represented a 43.3% increase from year-ago levels.
Forecasts have also become more optimistic. Overall for the year, Wall Street predicts a profit of 5 cents per share. Analysts expect this profit to rise to 12 cents per share in 2019. Likewise, they expect revenues to increase by about 14.9% in 2018 and about 11.7% in 2019.
Still, GLUU Has a Lot to Prove
The problem lies in how dependent the future of Glu Mobile stock has become on that improvement. In past quarters, revenues have fallen short of producing the funds needed to pay both its research and development (R&D) costs and its sales, general, and administrative expenses.
While the company continues to release new titles, the majority of its revenue comes from existing games such as Design Home, Tap Sports Baseball, and Covet Fashion. Glu has to spend heavily on marketing expenses to maintain the revenue stream that comes from its existing games. Its future also depends on leveling up R&D to find its next hit game. This game has not yet emerged.
Furthermore, the charts do not look favorable for Glu Mobile stock. The equity saw a high of $6.84 in 2015. It has not traded higher than that level since soon after its 2007 IPO. If the stock can surpass this multi-year high, it could be poised for a much higher move. However, it will likely take a new hit game to make such a breakthrough possible.
Final thoughts on GLUU stock
The continuing success of GLUU stock will rely on unknowns. To be sure, the stock has risen as the company sees revenues rise with the popularity of its top three games. Unfortunately, this revenue relies on older games which require a large amount of marketing-related spending. Moreover, that next big game has yet to emerge from their R&D spending.
Hence, the situation leaves me with the same conclusion that my colleague Josh Enomoto reached in his recent assessment of Glu Mobile. Glu has become what he calls a “speculative bet” on whether it can create the next big thing in mobile gaming. I do not see a path higher without that new game emerging.
For this reason, buyers should only purchase GLUU stock with gambling money. A marketing success with a new product would bring GLUU investors huge winnings. Then again, the same kind of win might happen at the horse track or the roulette table. Without such a win, GLUU will struggle to level up.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
