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What to Expect from Glu Mobile (GLUU) in Q1 Earnings?

Glu Mobile, Inc. GLUU, a developer of gaming applications for smartphones and tablets, is set to release first-quarter 2016 results on May 3. The company reported a positive earnings surprise of 71.43% in the last reported quarter. Furthermore, the company has delivered positive earnings surprises in the trailing four quarters with an average beat of 85.72%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

The launch of Kendall & Kylie Jenner game this February was well received initially but seems to failed to sustain the momentum. Moreover, it’s super successful game Kim Kardashian: Hollywood continues to be a top contributor to revenues (albeit slowing down).

We remain positive regarding the video game publishers’ much hyped celebrity games. The company has inked a number of deals with the likes of Britney Spears, Nicki Minaj and more.It remains to be seen whether the company can repeat the success of Kim Kardashian with other releases like Nicki Minaj for summer 2016 and a Taylor Swift game in Dec 2016.

However, growing competition from established players like Electronic Arts EA and Activision Blizzard ATVI might make it difficult for the company to register strong growth in the near term. Further, significant investment in research and development of new games will likely be a headwind for the company, putting pressure on margins.

For the first quarter, Glu Mobile expects revenues in a range of $46 million to $48 million and EBITDA in a range of loss of $6 million to $7 million. Loss per share is expected to be in a range 5 to 6 cents. Contribution from branded IPs will increase to 57%.

Earnings Whispers?

Our proven model does not conclusively show that Glu Mobile is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is -12.50%. This is because the Most Accurate estimate stands at a loss of 9 cents while the Zacks Consensus Estimate is pegged lower at a loss of 8 cents.

Zacks Rank: Glu Mobile carries a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Here is a company, which you may consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Quotient Technology Inc. QUOT has an Earnings ESP of +18.18% and a Zacks Rank #1 (Strong Buy).

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ACTIVISION BLZD (ATVI): Free Stock Analysis Report
GLU MOBILE INC (GLUU): Free Stock Analysis Report
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QUOTIENT TECH (QUOT): Free Stock Analysis Report
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