Glu Mobile: E-Commerce Play (NASDAQ:GLUU)


Glu Mobile (GLUU) has always been an appealing stock based on pure growth in mobile game revenues and a cheap valuation. The stock now has the potential catalyst of an additional revenue stream from e-commerce activities linked inside games. My investment thesis remains highly bullish on the stock based on mobile game revenue alone while a new material revenue stream would only add to the ultimate price targets.

Image Source: Glu Mobile website

Design Home Inspired

With or without an additional revenue stream, Design Home has been a huge hit game. Glu Mobile launched the game back in 2016 shortly after buying a controlling interest in Crowdstar for only $45.5 million. The game has now grown bookings to a record level of $62.3 million in Q2, up 47% YoY.

The home decor game has built a mobile e-commerce store called Design Home Inspired within the game allowing players to shop furniture related items in the game from $10 to $1,500. Players buying items get rewards for Design Home, but otherwise Glu Mobile was silent on the financial benefits to the company.

On the Q2 earnings call, CEO Nick Earl suggested the company had doubled down on the e-commerce store and was positive about the prospects of commerce within games:

On services, we launched – we relaunched our e-commerce initiative into a 20,000-person beta and are seeing compelling metrics. These positive indicators continue to hold, we will launch a U.S. e-commerce store in the fourth quarter.

The game has an incredible one million active users so at the least the e-commerce store concept with thousands of items should help drive higher engagement. The mobile store was launched on September 28 so management should be able to discuss more details on the Q3 earnings call in about a month.

Wayfair (W) now has a nearly $30 billion market cap from selling over $10 billion worth of furniture online this year. At the same time, eMarketer has the mobile e-commerce sales reached $314 billion this year and surging to $573 billion by 2024.

How much Glu Mobile benefits from this new e-commerce store is unknown, but the clear opportunity exists. Consumers are very willing to buy furniture online now and are no longer hesitant to use mobile phones for online shopping. The big question is whether Design Home can generate sales for products highlighted within the game.

Another Catalyst

The key to the value story on Glu Mobile hasn’t changed. The stock just has another catalyst for growth via both furniture sales in Design Home and likely apparel in Covet Fashion in the future. These games accounted for $86.4 million of Q2 bookings or close to 50% of the company so the e-commerce concept will quickly involve a material portion of their games.

The stock remains absurdly cheap here as even once hated Zynga (ZNGA) trades at double the forward EV/S multiple of Glu Mobile while Electronic Arts (EA) trades at triple the multiple.

Chart

The e-commerce shop will add revenues to the category outside of in-app purchases where Q2 had all-time high ad bookings of $16.4 million. Glu Mobile guided to Q3 total bookings of $132.5 million so any material boost here will provide substantial value to shareholders.

The company has regularly beat quarterly bookings estimates by a few million. Glu Mobile only needs the e-commerce concept to help drive a few million in additional quarterly bookings/sales in order for multiple expansion to substantially boost the stock. Pretty simple match would place Glu Mobile at $15.00 with the Zynga EV/S multiple and closer to $22.50 with the EA multiple.

Takeaway

The key investor takeaway is that Glu Mobile remains a cheap stock with another potential catalyst for growth. Investors should use the recent weakness following Q3 guidance of delayed games to purchase the stock here near $7.50 and over 25% below the recent highs.

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Disclosure: I am/we are long GLUU, ZNGA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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