I have recommended buying Glu Mobile (NASDAQ:GLUU) several times in the last few months and my recommendations have been profitable as the company has appreiciated significantly in the reference period.
I have cited Glu Mobile's strong product pipeline, and the launch of Apple's (NASDAQ:AAPL) iPhone 6 as the primary growth drivers for Glu. While the stock has jumped considerably, I think it has gone a little ahead of its valuation and I think investors should sell the stock and book profits at the current levels.
I don't think investors have priced in the headwinds and Glu's present valuation is a little strechted. One such headwind is the launch of next gen-consoles.
Gamers all around the world were eagerly waiting for the next-gen console cycle and they didn't shy away from spending hundreds of dollars to get their hands on these devices. This is evident by the fact that both PlayStation 4 and Xbox One have been selling like pancakes. Moreover, the holiday season has also driven the sales and this is bad news for both Zynga and Glu Mobile for two reasons.
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First, both the consoles are fairly expensive. Sony's PlayStation 4 is priced at $399 while Microsoft's Xbox One is selling for $499. Furthermore, both these consoles are even more expensive in countries like Australia and India.
And second reason is that console games are very expensive. With gamers spending hundreds of dollars on console gaming, I can see the mobile gaming market taking a hit in the near future.
While I still like Glu Mobile, I think investors should use the recent rally to sell and book profits as the stock looks a little overvalued. I think the launch of new consoles will have a little negative impact on Glu's sales and therefore I expect the stock to move lower in the coming months. Investors can use the upcoming plunge as an entry point, but for now I think Glu Mobile is a sell.