Over the years, Glu Mobile (GLUU, Financial) has been a very volatile stock. The company has been bound over a very wide range spanning from $2.50 to over $7. The company has bounced between this range many times, and the stock is currently trading at the bottom-end of the range.
Due to the stock’s volatility, I don’t think investors should buy this stock for the long run, but trading it for the short-term can yield terrific results. In this article, I will explain why long-term investors should continue avoiding Glu Mobile despite the recent plunge.
Waning popularity
The popularity of Glu’s famous titles has started to decline and so has the company’s revenue. As a result the stock has plummeted in the last few weeks. This is evident by the company’s latest quarterly results. Glu reported revenue of $64 million, down 23% year over year, beating the analysts’ estimate by $5 million.
The company also slashed its guidance for the next quarter significantly. Glu now expects Q4 revenues to be in the range of $50 million to $52 million, significantly below expectations for $94.2 million, and loss per share of 2 to 3 cents, below consensus of a 6 cents per share.
Clearly, the waning popularity of Glu’s hit titles has taken a toll on its revenue and its stock. And Glu, like every other mobile gaming company, has failed to replace its hit titles with new ones.
No barrier to entry
Another reason why I think no single company can dominate the mobile gaming industry is the lack of entry barriers. There are no considerable obstacles that prevent new competitors from easily entering the mobile gaming business.
Developing a hit mobile game doesn’t always require huge investments. There are hundreds of thousands of registered developers on both Android and Apple (APPL), and this shows that the mobile gaming industry is fragmented.
For instance, in 2013, a Vietnamese-based developed Dong Nguyen created Flappy Bird. Despite Flappy Bird’s ridiculous graphics, no initial advertising, and simple concept, the game went viral in 2014. As a result Nguyen was earning $50,000 per day.
Although proper marketing can help gain recognition in the initial stage, the long-term success of a game depends entirely on its concept. No one could’ve predicted that Flappy Bird would be such a huge success back in 2013, and the fact that it was developed by a single programmer highlights the lack of barriers to entry in the mobile gaming business.
Another example is Supercell’s blockbuster title Clash of Clans. Clash of Clans is the highest grossing game on the App Store ever, and it was developed only by a team of five members.
Hence, it can be concluded that the mobile gaming industry is massively fragmented, and although the market is growing rapidly, it is impossible for a single company to consistently produce chart-topping games.
Conclusion
The fact that Glu Mobile’s shares have bounced back and forth in the $2.50 to $7 range many times in the last few years shows that the company’s success is cyclical. Also, given the lack of entry barriers and the fragmentation of the mobile gaming industry, I am sure that no single company will be able to dominate the sectors in near future. Hence, I think investors should stay away from Glu Mobile.
