Shares of Glu Mobile (GLUU) have plunged 32.6% on elevated volume levels leading up to and following last week’s earnings report.
Though Glu Mobile reported ‘a beat’ to Wall Street’s estimate, a combination of controversial guidance and profit-taking initially incited a $1.29 sell-off in the stock throughout the trading day of Thursday last week (Jul. 31).
Follow-up selling has since continued, taking GLUU back down to the $5 level, where the stock now appears to be catching a bid. A look at the Slow STO suggests GLUU is now oversold at $5. The accumulation/distribution statistic also suggests $5 is the price level where the speculative money has evaporated, leaving the hardcore traders net long.
Analysts Too Late to Shout ‘Buy’. But Better Late Than Never
Also on Jul. 31, equities research firm Canaccord Genuity rated GLUU a ‘buy’.
Northland Securities issued a “buy”.
On Jul.21, Cowan & Company noted a “buy”, and targeted $10 as the next high-water mark for the stock.
And, on Jul. 2, Needham & Company rated GLUU a “strong buy”.
So, suddenly analysts love GLUU.
Readers of Jason Bond Picks were given the heads-up to GLUU – back in May! We saw the potential of this stock from a mile away. The company’s market savvy and management talent mix tipped off an explosion awaiting investors.
Bond Beats Wall Street Analysts to the Punch by a Country Mile
“Sure, we saw GLUU coming way back in May,” Jason Bond said Thursday, “but we didn’t expect that bright light at the end of the tunnel was moving at us at 200 miles per hour. It was really the Kim Kardashian: Hollywood game’s overnight success that surprised even us.
“To be fair, we expected GLUU to take investors’ money away from sector rivals ZNGA and KING when performance metrics of the three rolled in throughout the year – but not within two month,” Bond chuckled. “But, we’ll take it.”
Bond goes on to say that when investors average the target price issued by Wall Street analysts who cover the stock, the mean estimate is still north of $6.
With revenue from Kim Kardashian: Hollywood projected to reach $200 million per annum, Cowen & Company analyst Doug Creutz sees $6 per share as a breeze, noting that sales of Kim Kardashian: Hollywood are on course to rival King Digital’s smash-hit wonder Candy Crush. Presently, Kim Kardashian: Hollywood is among the top-five most-downloaded game at Apple’s app store.
Don’t Fear GLUU’s Guidance. It’s All About Revenue
Last Thursday’s precipitous drop in the price of GLUU was attributed by financial media as a reaction to investors’ disappointment with a company forecast for a decline to gross margin. Glu Mobile expects margin to fall to 58% for the third quarter, down from the reported 69% for the second quarter.
However, investor fears of further margin compression of the magnitude reported for Q2 are unfounded, according to Glu Mobile Chief Executive Officer Niccolo de Masi. Glu anticipates spending more on licensing games in the current quarter, including Kardashian, RoboCop and Hercules, he told Bloomberg News.
Higher revenue gained at the expense of some margin isn’t a bad idea, according to de Masi. “What really matters is revenue doubling,” he said in response to questions regarding another announcement issued by the company on Thursday: the agreement to acquire Cie Games.
As the owner of top-grossing game Racing Rivals, Cie Games makes a welcome addition to Glu Mobile’s stable of winners. Behind Kim Kardashian: Hollywood, Racing Rivals ranks no. 2 on Glu’s top-grossing list of games.
But, the new online-game comes with some operating expenses, as server time and personnel costs will eat into Glu’s operating margin. However, the reported $100 million deal for Cie Games is expected to launch Glu to that “revenue doubling” de Masi referred to in the Bloomberg interview.
“At the moment, Kardashian is our highest grossing title, Racing Rivals is number two,” de Masi said. de Masi also stated that he will seek other blockbuster brands in music and sports akin to the popularity of Kardashian’s 30 million social media followers.
Jason Bond’s Latest Comments – Still A Two-Bagger?
“We have a strong sense that these latest developments are only the beginning to Glu’s long-term strategic plan,” Bond speculated. “Similar apps which feature a male, like the famous fictional character, James Bond, should also smash the charts for investors.
“We believe the sell-off in GLUU Thursday was mostly an excuse to profit-take a two-bagger gain achieved since our May 15 alert about the stock,” he added. “With any stock that moves so strongly like a GLUU, volatility is your friend, as the motives of chart watchers can easily be misinterpreted as a change to the company’s fundamentals. We see no change, but look for instead another two-bagger before the year is out.”
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Disclosure: I am long GLUU