Is Glu Mobile Set for Success in 2018?

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The stock of mobile game publisher Glu Mobile (NASDAQ: GLUU) has been on a tear in 2017. Shares of the mobile gaming specialist had more than doubled by mid-December thanks to an impressive turnaround strategy that has led users to spend more money on its games. The stock dropped recently after the release of The Swift Life, but is still up more than 85% in 2017.

Investors seem focused on the company's potential and in the most recently reported quarter, revenue increased 58% over the year-ago quarter, helping it reduce the per-share net loss by 73%.

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Glu Mobile is quite capable of sustaining this impressive momentum into the new year and beyond thanks to the popularity of its existing games and the launch of new titles. Let's take a look at the factors that will fuel the company's growth.

Popularity pays

Glu Mobile CEO Nick Earl says the company is on track to achieve sustained profitability on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis from the first quarter of 2018. This looks achievable as Glu expects to report a small loss on an adjusted EBITDA basis during the second half of the current fiscal year, and a set of new games should help it hit its target.

In fact, Glu believes that it can achieve a small profit on an adjusted EBITDA basis throughout next year even if it doesn't launch any new title. This demonstrates confidence in the company's strategy of keeping gamers hooked on its franchises with the help of constant updates.

For instance, Glu bolstered its existing gaming portfolio last quarter by updating games such as Covet Fashion with new features and content, helping the title land $9.6 million in bookings. In all, the company's portfolio of legacy games accounted for 43% of the total bookings during the quarter, which grew 67% year over year to $85.7 million.

Bookings refer to the amount that a customer has agreed to spend on a company's services. In Glu's case, the company is referring to the amount that users have committed to spend on its games in the form of in-app purchases. The fact that users are still willing to spend more money on the company's old titles is good news for the company.

Glu has decided that it will provide continuous updates to at least eight of its titles next year, which should improve margins as the heavy lifting of creating the games has already been done and improving user engagement leads to recurring revenue. Last quarter, Glu's net loss fell to $11.6 million from $43.7 million in the prior-year period. Gross margin jumped from negative 9% to 61%.

These new titles could be big catalysts

Glu's The Swift Life app, a social network developed with pop star Taylor Swift that was launched in mid-December, puts Glu is a really strong position going into the new year as it can cash in on Swift's popularity and fan base. This celebrity-focused app aims to connect Swift fans in a social media setting through messages and quizzes, and there is an entire legion of them out there. The celebrity has over 70 million followers on Facebook, as well as 104 million on Instagram.

The company could see a nice Swift-induced boost to revenue and its user base. The next big catalyst could come in the form of Glu's WWE-based game that's set for a mid-2018 launch.

Glu has indicated that it will use the likenesses and names of current WWE superstars as well as former legends to create a storyline-based game that'll be easy to play thanks to simple controls. This could prove to be a hit with the more than 2 million viewers who tune in to watch WWE SmackDown in the U.S. every week.

These two titles have the potential to significantly boost Glu's bookings, along with its existing titles, which should get better next year thanks to regular content updates. Analysts estimate that these tailwinds could help Glu Mobile to a profit of $0.09 per share next year as compared to a projected loss of $0.08 per share for 2017, giving investors a good reason to hold on to the stock despite massive gains over the past year.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.