Roth Doesn't See Any Growth Catalysts At Glu Mobile, Downgrades To Neutral

Glu Mobile Inc. (NASDAQ: GLUU) reported its 1Q results well ahead of the consensus and the estimates.

ROTH Capital’s Darren Aftahi downgraded the rating on the company to Neutral, while lowering the price target from $4.15 to $2.50, due to the lack of growth catalysts.

The analyst mentioned that Glu Mobile provided weak guidance for 2Q and FY16, which “underscore the fading grossing ranks of GLUU’s game catalog, as well as mediocre game beta performances.”

1Q Results And Guidance

The revenue, adjusted EBITDA and EPS for the quarter were significantly ahead of the estimates and Roth Capital’s proprietary sales analysis.

Gross margin came in at 61.1 percent, beating the estimate of 60.1 percent. The top four games for the quarter were "Kim Kardashian: Hollywood," "Cooking Dash 2016," "Kendall and Kylie" and "Racing Rivals."

Related Link: Stifel Remains Bullish On Electronic Arts, Despite Expectation For Light FY17 Outlook

In addition, the company slashed its FY16 guidance, driven by declining game rankings, with the sales guidance reduced $38 million at the midpoint to $215–$235 million, materially below the estimate.

“We had suspected a soft 2Q sales guide with the deterioration of some of GLUU’s top games, and it was,” Aftahi stated.

No Growth Catalysts

A majority of Glu Mobile’s game catalog has been witnessing quarter on quarter grossing rank declines 2Q to date, while the Kendall and Kylie game only experienced “a brief glimpse in the top 10 before fading in popularity.”

Aftahi expressed caution regarding the company’s ability to replicate the success seen by the Kim Kardashian app with its celebrity games slated for release in 2016.