Glu Mobile (NASDAQ:GLUU) is down about 9% following its quarterly report. GLUU stock plunged as the company missed estimates in the fourth quarter and guided lower for the first quarter. This created concern for investors as the company nears profitability and works to build its success.
Glu Mobile remains on a path to growth. Moreover, if one of its new games takes off, Glu Mobile stock will likely rise with it. However, with GLU’s dependence on only a few games, only risk-tolerant investors with interest in gaming should buy into this drop.
GLUU Stock Misses Revenue, Earnings Estimates
GLUU stock plunged in morning trading as the company missed estimates on both revenue and earnings.
The maker of games for smartphones and tablets reported a fourth-quarter GAAP loss of 1 cent per share. Wall Street had expected a profit of 7 cents per share. Revenues of $95.6 million showed a year-over-year increase of 19.2%. However, this fell short of analyst estimates of $95.98 million. For the 2018 fiscal year, the company lost 9 cents per share on revenues of $366.6 million.
Further bad news for GLUU stock came with the forward guidance offered by the company for the first quarter of 2019. The company doesn’t report full revenue guidance, but expects bookings between $88 million and $90 million. Analysts had previously forecast bookings at $93.5 million for the quarter.
GLUU stock immediately dropped by more than 10% in after-hours trading.
This represents a change in sentiment surrounding the company. Analysts had previously voiced optimism on GLUU. Cowen had named GLUU stock as its best idea for 2019. Part of that related to three new game launches in 2019. Glu Mobile will partner with Disney (NYSE:DIS) and Pixar for one of these games.
Report Changes Little for GLUU Stock
Last year, I stated that the company would need a hit game soon to have a future. Still, if at least one of its three games becomes a hit, and the current games do not drop off dramatically, this post-earnings drop could result in a temporary setback.
GLUU appears poised to turn a profit this year. Analysts predict a 20% increase for revenues in 2019. Despite disappointing first-quarter guidance, GLUU believes it will bring in between $435 million and $445 million in bookings for this year. That prediction meets the consensus estimates of $43.5 million.
Beware of the Risks
However, this assumes people will still flock to Glu’s titles. New buyers should know that GLUU already trades at multi-year highs. Also, they should remember that this $1.3 billion company has spent most of its 12-year history as a penny stock.
Also as InvestorPlace contributor Luke Lango points out, GLUU has to attract increased interest in a shrinking market. Though smartphone and tablet use continues to rise, interest in mobile games has fallen. Time spent on mobile gaming fell in 2016 and 2017. In 2018, it saw the slowest growth rate of any category. Competing with Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB), and offerings from Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) such as YouTube will make Glu’s challenge all the more difficult. Such realities make interest in the company’s games the true fundamental of GLUU stock.
The Bottom Line on GLUU Stock
Amid the post-earnings selloff, GLUU stock has become a buying opportunity — but only for some high-risk investors. GLUU nosedived as the gaming company missed revenue and earnings estimates. It also guided lower on first-quarter revenues.
But if at least one of its new games takes off, GLUU stock will likely climb with it. However, investors need to remember that it has only recently grown out of its penny-stock status. Any major failure could return GLUU to the $2 per share range where it traded just two years ago.
Missing earnings does not change anything fundamental for GLUU stock. The future of Glu Mobile hinges on game revenue. As such, investors will need knowledge of gaming and some risk tolerance if they want to try to profit from Glu Mobile stock.
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.