Recently,Glu Mobile, Inc. GLUU sold a 14.6% stake to Tencent Holdings Ltd., a leading Chinese gaming company, for $126 million. Per the deal, Tencent bought the shares at a rate of $6.00, reflecting an 11% premium on the current price.
In response to the news, Glu’s shares surged 24% in extended trading on Wednesday eventually closing at $5.40, representing a gain of 5.7%.
Glu Mobile, developer of popular games such as Deer Hunter andKim Kardashian: Hollywood, is also planning to launch a mobile game featuring pop star Britney Spears in the first half of 2016. We believe that Tencent’s investment will drive growth given its financial strength and market leading position as one of the biggest Internet companies in China. In addition, the company is China’s largest gaming company and features among the top publicly traded companies in the world in terms of game revenues according to Newzoo.
The company generated $7.2 billion in 2014, followed by Sony SNE and Microsoft MSFT, generating $6.04 billion and $5.02 billion in game revenues, respectively. Apart from Glu Mobile, Tencent also owns stakes in major U.S. game companies such as the Activision Blizzard ATVI and Epic Games.
We believe that Glu Mobile’s better-than-expected earnings results also contributed to the increase in share prices. The company reported first-quarter earnings of 1 cent, which compared favorably with the Zacks Consensus Estimate of a loss of 1 cent.
In the first quarter of 2015, Glu Mobile reported $2.1 million in profit, or 2 cents per share, on sales of $62.4 million. That’s ahead of Wall Street’s expectations of a 1 cent loss per share on sales of $51.6 million. The company’s adjusted revenues were 33% higher year over year to $62.4 million, beating estimates of $51 million. In addition, Glu Mobile raised its revenue outlook for the full year to $262–$287 million from the $245–$275 million range, reflecting business growth.
Glu Mobile currently has a Zacks Rank #3 (Hold).
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