Roth Capital analyst, Darren Aftahi, weighs in on Glu Mobile Inc. (NASDAQ:GLUU) following the company’s second-quarter earnings report. In reaction to a game portfolio sliding in rankings, underperformance in new titles, and reduced guidance, the analyst reiterates his Neutral rating while slightly lowering the price target from $2.50 to $2.00.
According to Aftahi, though second-quarter earnings beat consensus by a slim margin, weak third quarter and FY16 guidance highlight the “fading grossing ranks of GLUU’s game catalog.” GLUU reported second-quarter non-GAAP revenues of $50.9 million and EPS of $0.03, just over Aftahi’s projection of $47.7 million in revenue and a loss of $0.06 in earnings per share. The analyst’s skepticism proved to be real, explaining, “We had suspected a soft 3Q sales guide with the deterioration of some of GLUU’s top games, and it was.” Whereas Aftahi had projected guidance of $52.5 million for the upcoming third quarter, GLUU issued outlook in the range of $50 million to $52 million. Meanwhile, the gaming company slashed its expected sales for the year from the range of $215 to $235 million down to $195 to $202 million.
The analyst believes that with limited success in new game titles, GLUU will have to shift its focus to legacy games. From Aftahi’s standpoint, “As GLUU shifts focus to enhancing its current top-preforming games, we see limited near-term catalysts in new game launches, and we believe it may be difficult for GLUU to produce meaningful growth while focusing on its current fading catalog.”
GLUU’s renewed focus will be channeled to its current genre-leading games, which include Tap Sports Baseball, Racing Rivals, Kim Kardashian, Deer Hunter, Cooking Dash and Gordon Ramsay. One way GLUU intends to significantly change the game with its existing catalog will be with revised modes and better attention on community-integration features along with player vs. player modes to tackle the company’s issues of catalog decline. The analyst upholds that the company will launch only one new title this year, instead choosing to invest the rest of its efforts and resources into significant catalog upgrades well until 2017.
According to TipRanks, 100% of analysts polled in the last 3 months issue a Hold rating for shares of GLUU. The consensus target price for the stock is $2.43, marking a 6.11% upside from current prices.
Darren Aftahi is ranked #2,149 of 4,071 analysts. He maintains a success rate of 44% and realizes an average return of 0.4%. When rating GLUU, the analyst realizes an average loss of 0.1%.
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