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Earnings on Tap: Glu Mobile and Oculus Innovative Sciences
Published Tuesday, November 03, 2015 by Fred Zucker
Earnings season is in full swing, with about 350 S&P 500 companies having disclosed their results from the latest quarter through Friday.  Considering the headwinds from soft global economies and sluggish growth in the United States during the third quarter, analysts didn’t set expectations too high and about 68 percent of companies beat earnings estimates, keeping Q3 in line with long-run averages.  Some S&P 500 components hit it out of the park, including real estate firm Prologis (NYSE: PLD) crushing analyst expectations by a stunning 133 percent with adjusted profits of 49 cents per share.  Shares of First Solar (NASDAQ: FSLR) spiked 12 percent on Friday as the solar energy solutions provider blew past predictions with earnings of $3.38 per share, versus $1.55 expected.

Earnings will still be in focus this week, with some popular smaller companies in the spotlight, including game developer Glu Mobile (NASDAQ: GLUU) and specialty pharma Oculus Innovative Sciences (NASDAQ: OCLS).

Analysts expected Glu, who makes free-to-play games for smartphones and tablets, to have a tough second quarter, forecasting a net loss of 4 cents per share on revenue of $51.5 million.  The company outstripped those expectations, surprising with a profit of 1 cent per share and sales of $56.2 million.  Looking to the recent quarter, expectations are again for Glu to report a net loss of 4 cents per share, although for the full year, the consensus is that Glu will report a profit of 3 cents per share.  If Glu can confound analysts again, the beaten down stock might find some legs to move towards the $8.15 consensus price target analysts currently have on the stock.

Oculus began a turnaround effort late in 2013, which has included spinning out its biotechnology unit, shuffling executives, replacing board members, winding down its legacy animal health operations and rebuilding them under a better business model, launching new Microcyn-based dermatology products and creating a new derm division called IntraDerm Pharmaceuticals.  As with any turnaround, it took time to get the parts in motion, but they now all are in sync as evidenced by growing year-over-year sales and a stock price that has basically doubled after hammering out a bottom at 65 cents in May.

In the first quarter of fiscal 2016, ended June 30, 2015, total revenue was up 8 percent from Q1 fiscal 2015 to $3.68 million.  Net loss was 15 cents per share.  Product revenue climbed 37 percent, including a 122-percent jump for US product sales to $787,000, which put US sales back in front of sales to the rest of the world ($571,000).  In Mexico, Oculus’ largest market, product sales were ahead 43 percent to $1.6 million, even though negatively impacted by an unfavorable currency exchange.  This surge in sales in Mexico is attributable to Laboratorios Sanfer, a large distributor with channels throughout Latin America, acquiring More Pharma, Oculus’ previous distribution partner, in January 2015.  Given the considerably larger sales territory of Sanfer, the buyout should continue to grow Oculus’ footprint south of the U.S. border.

At the end of the first quarter, Oculus had $8.8 million in cash and cash equivalents and no material debt outstanding.

Looking to the second quarter of fiscal 2016, ended September 30, analysts are expecting similar figures to Q1.  Maxim is forecasting $3.602 million in revenue and a net loss of 8 cents per share.  Stonegate expects $3.767 million and a net loss of 14 cents per share.  Dividing the annual expectations of Dawson James puts Q2 revenue at $3.8 million and a net loss of 8 cents per share.  Yahoo Finance has the consensus at $3.69 million and a net loss of 11 cents per share.

In the same quarter of fiscal 2015, Oculus reported total revenue of $3.264 million and a net loss of 8 cents per share.  Therefore, analysts are expecting little quarter-over-quarter growth and 13 percent year-over-year revenue growth.  It is possible that Oculus will exceed the consensus revenue due to the expected continuing sales ramp of the dermatology business, as shown in the company’s posted investor presentation.

Oculus remains an underappreciated value play with valuation measures that trail industry peers in nearly every metric, including a market capitalization and enterprise value of about $20.7 million and approximately $11.3 million, respectively. If the company continues to show consistent growth quarter-over-quarter as well as in consecutive quarters, both the appreciation for and the value of the stock could be on the upswing.

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