Piper Jaffray Continues To Like Glu Mobile, Wedbush Sees Hurdles Ahead

Mobile video game developer and publisher Glu Mobile Inc. GLUU reported fourth-quarter results Monday that prompted Piper Jaffray to turn incrementally bullish on the stock, while Wedbush highlighted expectations for a slowdown in core growth games.

The Analysts

Piper Jaffray's Michael Olson maintains an Overweight rating on Glu Mobile with a price target lifted from $8 to $11.

Wedbush's Michael Pachter maintains at Neutral, unchanged $9 price target.

Piper Jaffray: Q1 Guide Not A Concern

Glu Mobile's Q4 is notable for 18-percent growth in bookings from last year to $98.2 million versus expectations of $96.1 million, while adjusted EBITA of $12 million beat expectations of $10.6 million, Olson said in a Tuesday note.

Strength in the quarter was driven by "Design Home," "Tap Sports Baseball," "Covet Fashion" and "Kim Kardashian Hollywood" as all four titles saw double-digit year-over-year growth rates.

Glu Mobile's 2019 guidance versus the Street's estimate is "somewhat apples/oranges," as management's new bookings guidance of $435 to $445 million doesn't include a Disney/Pixar game, but does include a contribution from "Diner Dash Town" and a WWE-themed game, the analyst said.

The Street's estimates likely includes some form of all three games, Olson said. 

Finally, the company's report signals a pivot away from "celebrity content" toward new games with improving revenue visibility and cost containment, the analyst said.

As such, new game releases are less critical for growth as they've been in the past, but it remains encouraging that the company has an active pipeline of new releases slated for 2019 and 2020, according to Piper Jaffray. 

Wedbush: Lofty Valuation

Glu Mobile deserves credit for the tremendous success of "Design Home," but this may also signal the potential for bookings erosion and a reliance on existing core growth games, Pachter said in a Tuesday note.

The Q1 bookings guidance of $88 to $90 million is short of expectations of $95 million, and Glu's EBITDA guidance of $7 to $8 million is also short of expectations of $12 million, the analyst said. 

While the company has proven itself to be a "standout small-cap growth story," the research firm's $9 price target already implies a forward EV/EBITDA multiple of 18 times 2020 estimates, which is a premium to its peers, Pachter said.

For the stock to outperform the company can't afford one misstep or game delay and would need to generate $20 million in from new games in 2019 and another $50 million of growth in 2020, he said.

If Glu is successful, a revised bullish stance on the stock may be warranted at that time, according to Wedbush. 

Price Action

Glu Mobile shares were down 11.96 percent at $8.98 at the time of publication Tuesday. 

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Screenshot courtesy of Glu.