I am requesting for advice and improvements on my stock pitch below.
(FYI: My background is in accounting. I am practicing pitches to help me transition into
investment type roles. I am improving my financial modeling skills and hope to provide valuation analysis in the future.)
Any help would be appreciated. Thank you!**
$GLUU - My thoughts on why it satisfies LONG and SHORT traders (LONG pitch for the long term, SHORT pitch for the short term )
LONG for the long term, SHORT for the short term:
Glu Mobile (GLUU)
Today's price $7.28 Today's movement _1.82% Market Cap (Yahoo Finance) $1.056B
52 week high: $11.75 52 week low: $5.08
Summary: Glu Mobile designs and publishes mobile games. It is known for games like Diner Dash, Kim Kardashian:Hollywood, Deer Hunter, Design Home, Covet Fashion, Tap Sports Baseball, and QuizUp. In November 2016, Glu promoted Nick Earl to CEO from President of Global Studios. Nick Earl set a 3-phase plan to drive profitability for the long term. Phase 1 was to increase profitability in its three "growth games": Design Home, Covet Fashion, and Tap Sports Baseball. Phase 1 was achieved in Q1 19 when the three growth games grew 30% year-over-year and contributed 78% to total bookings, up from 64% a year ago. (FYI: Analysts concentrate on bookings more than revenue in mobile apps. Bookings include all the cash paid for any virtual item, consumable or durable, and independently of whether those items have been used or not.) Phase 2 is to create new growth games and Glu is in the midst of this. It launched two potential growth games in Q2, WWE Universe and Diner DASH Adventures. Disney Socerer's Arena is set to launch in August and three more titles are set for 2020. Phase 3 is to strive for operating excellence and financial discipline. Glu achieved its first GAAP profitable quarter in Q1 19 since Q1 15.
I recommend short Glu until it achieves two profitable quarters in a row. I believe Glu was overly optimistic in its FY 19 guidance after Q1 19 and needs to prove it can create other growth games. I believe in Glu's team, its strong balance sheet, and the possibility to be acquired by Zynga that I am long for the long term.
Catalysts for Short in the Short term:
- Glu is overly optimistic with its bookings guidance.
Glu beat its bookings guidance in Q1 19 by $2.8M and increased its FY19 guidance by $10M to $445-$455M. It also, expects Q2 19 to be its highest bookings quarter ever in company history at $100M-$102M. Glu stopped providing a guidance breakdown by game but Eric Ludwig (COO &CFO) said on the earnings call that the boost will come from its new titles, WWE Universe and Disney Socerer's Arena. Eric also mentioned, Design Home, Covet Fashion, and Kim Kardashian: Hollywood will have flat bookings from Q1 19 to Q2 19 because two game publishers started aggressive UA (user acquisition) campaigns and drove up CPI (cost per install). Glu decided to reduce its own UA spend to maintain profitability.
I believe Glu is putting too much pressure on its new titles. WWE Universe has great ratings (Google Play Store 4/5 stars, Apple App Store 4.7/5 stars), but dig a little deeper in its most recent reviews and they are mixed. Users are complaining about the app crashing and pay to play being introduced too quickly into the game. I am worried about user retention and bookings for WWE Universe.
- Insider selling
Tencent sold a little less than 25% of its stake in Glu on May 31st. Tencent now owns 14.5% of Glu. This is a soft catalyst but large insider selling always concerns me. In addition, I thought Tencent could have been a potential acquirer for Glu in the future. The recent sell off makes it less likely.
Catalysts for Long in the Long Term:
- Glu's strong Executive Team and Board of Directors
Aforementioned, Nick Earl is doing a great job getting Glu back to profitability. In addition, Darla Anderson, Pixar's Coco producer, joined the board of directors in March of this year. Disney licenses its mobile games to companies like Glu (aka Disney's Socerer's Arena). I believe Darla's connection and the potential success of Disney's Socerer's Arena can make Glu a larger player with Disney. Glu has a blend of licensed and royalty-free Glu IP (intellectual property) titles.
- Strong Balance Sheet
Glu has a healthy cash balance and its liabilities are manageable.
See slide 12 from Glu's Q1 19 Earnings Call slide.
- Possibility to be acquired by Zynga
Zynga ($5.921B Market Cap from Yahoo Finance) entered into a deal to sell its San Francisco headquarters for $600M. This could be dry powder for Zynga to acquire a company like Glu ($1.056B Market Cap from Yahoo Finance)