U.S. Markets closed

Can Zynga and Glu Mobile Keep Hitting New Highs?

Rick Munarriz, The Motley Fool

It's been a long time since shares of Zynga (NASDAQ: ZNGA) and Glu Mobile (NASDAQ: GLUU) were trading as high as they are right now. Zynga stock hit a five-year high on Thursday, the same day that Glu Mobile shares tapped their highest levels since the summer of 2007. 

Mobile gaming wasn't a hot investing niche a couple of years ago. Investors steered clear of the makers of casual smartphone diversions given the cutthroat climate of fickle gamers and the low bar to entry that made it easy for anyone to hit the market with a new app. Zynga and Glu Mobile are fetching their highest prices in years, and the good news for investors is that the rallies still have room to run. 

Kim Kardashian Hollywood cover art.

Glu Mobile is about so much more than just Kim Kardashian these days. Image source: Glu Mobile.

Playing to win

A few years ago, the best that a mobile gaming publisher could hope for is a hot title that would smoke out a moneyed suitor willing to pay a modest premium in a buyout. Candy Crush Saga parent King Digital and Clash of Clans publisher Supercell went this route, but life is no longer about hoping for an exit strategy. Zynga and Glu Mobile have growing catalogs of popular titles that are staying on top for a long time. 

Zynga has rattled off back-to-back years of revenue growth, something that investors haven't seen since 2012. Glu Mobile is also coming off back-to-back years of top-line gains. If it can squeeze a third consecutive year of increasing revenue -- and Wall Street sees a 22% uptick in 2019 -- it would be the first time in more than a decade that Glu Mobile accomplishes that feat. 

The reason that the gains seem sustainable this time is that it's no longer just one hot new title moving the needle. Zynga's growth in its latest quarter came from classics including its Scrabble-like Words With Friends and its CSR2 auto racing game, as well as the addictive Merge Dragons! puzzle game. Glu Mobile's three biggest contributors -- Design Home, Tap Sports Baseball, and Covet Fashion -- experienced year-over-year bookings growth in its latest quarter of 46%, 38%, and 49%, respectively.

Momentum is on their side. Glu Mobile shares may have suffered a 13% hit the day after it posted poorly received fourth-quarter results last month, but it has obviously made all of that back -- and then some -- to be trading at its highest point in more than a decade.

The near-term future is promising. Zynga's mobile advertising revenue and bookings are growing faster than its revenue gains. Glu Mobile has a robust pipeline of upcoming releases, and every springtime update of its Tap Sports Baseball franchise seems to widen its audience of baseball buffs. 

The best thing that could've happened a few years ago for a hot mobile-games publisher was a buyout at a reasonable premium. Right now, that seems to be the worst thing that could happen, as Zynga and Glu Mobile have become hit factories. Their winners are growing longer tails. The new highs will probably keep coming as investors catch up to the more sustainable and lucrative landscape of mobile gaming stocks. 

More From The Motley Fool

Rick Munarriz owns shares of Glu Mobile. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.