Glu Mobile Has 'A Path To Continued Multiple Expansion And Margin Improvement,' Piper Jaffray Says

The growth of mobile gaming has Piper Jaffray out bullish on Glu Mobile Inc. GLUU.

The Analyst

Analyst Michael Olson initiated coverage of Glu Mobile with an Overweight rating and $7.50 price target.

The Thesis

Glu Mobile is on a favorable ongoing trajectory, with the company reducing its dependence on new and licensed content, Olson said in the initiation note. 

Mobile device footprint growth is serving as an underlying tailwind for Glu Mobile, the analyst said. 

While 2017 was a transition year for the company, Olson is expecting double digit bookings growth in 2018 and 2019 and forecast operating margin expansion growth from a negative number to greater than a positive 10 percent.

“We now see a path to continued multiple expansion and margin improvement based on the changes implemented to date,” the analyst said. “While new titles are less critical for the ongoing growth of the business than was historically the case, Glu does have a solid pipeline of new games that are expected to hit in [the second half of 2018] and 2019.”

Eighty-five percent of Glu Mobile's revenue in 2018 is anticipated to come from existing games as the company leverages its existing game portfolio and player base, Olson said. The user base is Glu Mobile's most important asset as the company utilizes its growing data on player behavior and engagement, the analyst said. 

“This data allows the company to better allocate resources to content updates that will drive monetization; it also creates a widening competitive barrier to entry vs. many other mobile developers." 

Price Action

Glu Mobile shares were up more than 3 percent at $6.42 at the time of publication Friday afternoon. 

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