Benchmark Upgrades Glu Mobile (GLUU) to Buy; Analyst Says Kim Kardashian Game Remains Strong

(Updated - October 8, 2014 8:20 AM EDT)

Benchmark upgraded Glu Mobile (NASDAQ: GLUU) from Hold to Buy with a price target of $5.90. Yesterday StreetSweeper.org issued a negative report on the stock, warning investors that popularity of its Kim Kardashian game is fading. The short-seller's report notes downloads of the Kim apps have fallen.

With shares under pressure, analyst Mike Hickey views risk reward as positively balanced. He also said he isn't concerned about download rankings since its player base is already installed.

"We have raised our rating on the Company’s shares from Hold to Buy given the recent valuation compression over rationalized performance expectations," said Hickey. "The valuation has contracted 31% from their Q2 print, and has currently settled on their 200 day MA. Negative investor sentiment on mobile games companies could prove a heavy drag, as could a market correction, which may be in process and could have a protracted impact on momentum plays."

"The Kim game continues to hold a strong position on iOS ranking charts, after a recent update, it is currently a top 6 grossing iOS app on US charts. We are less concerned over download rankings, as the game’s player base has been effectively installed, while strong player engagement has maintained monetization strength," he continued.

"We suspect the Company could leverage the KK game engine for Asia markets, potentially leveraging another license more relevant for that audience. Upcoming releases include Diner Dash and Contract Killer, with Deer Hunter, Car Town and Bond anticipated for fiscal ’15. The Company’s early close of Cie games acquisition should also provide an incremental positive, with Racing Rivals current ranking #30 for top grossing apps on iOS charts. We estimate the game could generate $10 million a quarter over $3 to $4 million in EBITDA," added the analyst.

For an analyst ratings summary and ratings history on Glu Mobile click here. For more ratings news on Glu Mobile click here.

Shares of Glu Mobile closed at $4.76 yesterday.

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