Trading within 5% of its 52-week high of $10.41, Glu Mobile (NASDAQ:GLUU) and Glu Mobile stock is on a roll. It’s up almost 24% year-to-date through March 14 and a whopping 160% over the past year.
Source: Glu Mobile
As a result of the roll it’s on, investors are wondering if this is the beginning of a move to $14.80 and beyond, the all-time high for Glu Mobile stock, which was achieved in June 2007 , or is $10.41 the best investors can hope for?
However, when it comes to companies that aren’t making money as is the case with Glu Mobile, I always ask myself if there isn’t a better option available that is profitable. After all, investors like Catherine Wood might be comfortable betting millions on a company like Tesla (NASDAQ:TSLA), but regular investors looking to grow their retirement accounts safely, ought to at least consider the alternatives.
I’ve found a company whose market cap is almost identical to Glu Mobile and also is losing money.
Its name is Benefitfocus (NASDAQ:BNFT), and it provides a cloud-based platform that helps employers, insurance brokers and carriers, and other benefit suppliers, deliver excellent employee benefits.
In a tight employment market like the one we have today, Benefitfocus’ services could be the difference between an excellent business and a mediocre one.
Mobile games vs. cloud-based technology.
One is a more significant contributor to the health and wellness of Americans, but before I rush to judgment, why don’t I consider the strengths of each business.
Glu Mobile Stock Strengths
Any time you’ve got the Kardashians on your team, you’re going to attract a lot of attention. According to the company’s 10-K, Kim Kardashian: Hollywood generated $34.0 million in revenue in 2018, 28% higher than a year earlier, making it one of Glu Mobile’s top revenue generators.
In terms of its income statement, two things jump out at me that are positive.
Overall revenues have grown by 64% over the past four years from $223 million in 2014 to $367 million in 2018. A little farther down the income statement, Glu Mobile’s gross profits increased by 91% to $228 million from $137 million in 2014. Not only that, but gross margins increased slightly over the four years from 61.6% to 62.3%.
Where things don’t look nearly as positive is on the bottom line where it’s managed to lose almost $200 million over the past five years.
Looking at this with the glass half full, Glu Mobile only lost $13.2 million in 2018. More importantly, in the fourth quarter, it just lost $1.3 million on a GAAP basis, far less than the $39.6 million loss in Q4 2017.
As CEO Nick Earl stated in its Q4 2017 press release, the fourth quarter and 2018 were good performances.
“Our strong fourth quarter performance capped off a great year for Glu and our shareholders. Bookings for the full year grew 20% on the strength of our core business driven by the successful execution of our Growth Games strategy…The top line growth we delivered drove increased profitability on an adjusted EBITDA basis each quarter throughout 2018 on a year over year basis, reflecting the scale in our operating model.”
It might not be making money on a GAAP basis, but it’s getting there.
Benefitfocus makes money on a subscription basis from its customers who use its software-as-a-service offerings over the cloud. Its employer customers sign one-year contracts that are renewable annually while insurance carriers sign contracts for more extended periods of three to five years.
So, the amount of recurring revenue that it gets is reasonably high. Recurring revenue, in my opinion, is the Holy Grail of sales.
In terms of the breakdown of its revenue, it gets approximately 66% of sales from those one-year employer contracts and the remaining 34% from insurance carriers. In 2018, Benefitfocus increased employer revenue by 10.6% year over year and 6.7% for carrier revenue, bringing the total to $258.7 million, 9.2% higher than a year earlier.
On the bottom line, it lost almost $53 million on a GAAP basis in 2018, 4.6% higher than a year earlier. However, on a non-GAAP basis, Benefitfocus lost $18.3 million in the past year, 44% less than in 2017. In the fourth quarter ended December 31, 2018, it made $4.7 million, 375% better than a year earlier.
So, it too is going in the right direction.
The Bottom Line on Glu Mobile Stock
In early February, my InvestorPlace colleague Will Healy suggested that only risk-taking investors should buy its stock on the dip.
GLUU had dropped from over $10 down to the high $8s on the company’s Q4 loss and a weak outlook for bookings in 2019. Healy felt that because the volatile nature of the gaming business, you’ve got to have a good understanding of the industry to know whether Glu Mobile is winning or losing.
I don’t disagree.
Both stocks require a firm understanding of how they make money, whether competitive threats are real or imagined, and are they gaining a pathway to profitability.
I believe both businesses are doing what it takes to grow profitably.
However, if I only could buy one stock, I’d have to go with Benefitfocus for the sole reason that it’s solving a problem. Businesses that do this have a good chance of succeeding.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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