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What's in the Cards for Glu Mobile (GLUU) in Q2 Earnings?

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Glu Mobile, Inc. , a developer of gaming applications for smartphones and tablets, is set to release second-quarter 2016 results on Aug 2. The company reported a positive earnings surprise of 25.00% in the last reported quarter. Furthermore, the company has delivered positive earnings surprises in the trailing four quarters with an average beat of 66.97%.

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

GLU MOBILE INC Price and EPS Surprise

Factors to Consider

The company’s roster of celebrity games is one of its biggest positives. Its super successful game Kim Kardashian: Hollywood continues to be a top contributor to revenues (albeit slowing down). In the last reported quarter, the top line also benefitted from the launch of another celebrity game Kendall & Kylie Jenner. The to-be reported quarter marked the launch of two new celebrity titles Britney Spears American Dream and Gordon Ramsay Dash, which are expected to boost the top line.

For the second quarter, Glu Mobile expects revenues in a range of $46 million to $49 million and EBITDA in a range of loss of $5.5 million to $7 million. Loss per share is expected to be in a range 5 to 6 cents.

However, growing competition from established players like Electronic Arts and Activision Blizzard 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 and put pressure on margins.

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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is 0.00%. This is because both the Most Accurate estimate andthe Zacks Consensus Estimate are pegged at a loss of 8 cents.

Zacks Rank: Glu Mobile carries a Zacks Rank #3. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

Here are a couple of stocks, which you may consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

CDK Global, Inc with an Earnings ESP of +4.26% and a Zacks Rank #1

GoDaddy Inc. (GDDY - Free Report) with an Earnings ESP of +50.00% and a Zacks Rank #3.

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