Glu Mobile Stock Can Bounce Back After Hitting Rock-Bottom

By Markets Fool.com

Image source: Crowdstar.

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Glu Mobile(NASDAQ: GLUU)shareholders know that it's always darkest before the dawn. The stock hit a five-year low on Thursday, but the shares went on to bounce off their lowest levels since late 2011 after the mobile gaming app publisher shuffled its management team and announced a well-received acquisition after the market close. Glu Mobile also posted abysmal quarterly results for the third quarter, but let's not rain on this dead-cat bounce just yet.

Chairman and CEONiccolo de Masi will be handing the reins to Nick Earl, Glu Mobile's global studios president. When your stock is hitting multiyear lows, a change at the top is typically an applause-worthy event.Masi isn't bowing out entirely. He's transitioning to the newly created role of executive chairman, where he will focus onstrategic acquisition planning and maximizing celebrity relationships.

Maximizing Glu Mobile's relationships with paparazzi magnets is a pretty big deal. The success that Glu Mobile experienced in 2014 withKim Kardashian: Hollywoodtriggered a series of prolific celebrities turning to Glu Mobile to crank out celeb simulators as mobile apps.Katy Perry, Taylor Swift, and Gordon Ramsay are just some of the big names that have granted Glu Mobile the right to make apps based on their bigger-than-life personas. Glu Mobile hasn't been able to catch lightning in a bottle again, but the model makes Thursday's transaction -- where it's taking a controlling stake in Crowdstar -- a brilliant move.

Keeping up with the mobile gamers

Crowdstar is a leader in the fashion games niche. Covet: Fashion -- where buddingfashionistas can virtually shop and create outfits that are then voted on by other players -- remains a popular download even three years after its initial release. It's been downloaded more than 30 million times.There's also a unique e-commerce perk to the game, as folks can actually buy the designer brand items that they're tinkering with virtually.

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Glu Mobile is paying $45.5 million in an all-cash transaction for Crowdstar, and the synergy is pretty clear. It locks up mobile game licensing rights with major celebrities, and now it will be armed with the tools to profit from the dress-up process. It will also be able to cross-market its celebrity simulators to Covet: Fashion gamers and vice versa. Crowdstar is also beta-testing the potentially promising Design Home game that gives a home designer spin to its dress-up engine.

It's a no-brainer acquisition, and Glu Mobile can certainly use something going right for a change. Gross bookings clocked in at $51.3 million in its third quarter, 20% below its showing a year earlier. Its guidance for the current quarter calls for $46 million to $48 million in gross bookings, so it'll be a sequential dip -- something that we have seen happen in five of the past seven quarters since peaking at $72.9 million in late 2014. Even if it nails the high end of its outlook, we're looking at Glu Mobile's worst showing in gross bookings in more than two years.

Glu Mobile's ability to rub elbows with young superstarsand the synergy with its latest acquisition make the stock a good candidate to bounce back off of Thursday's five-year lows. It also continues to update its Tap Sports, Cooking Dash, and Deer Hunter franchises. Posting its fourth straight quarterly loss is problematic, but its cash-rich and debt-free balance sheet give it the ammo it needs for patient investors to wait out another hit. If it connects the dots just right following the Crowdstar addition, finding another hit will be easier than you probably think.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.