Though there was nothing groundbreaking uncovered in Glu Mobile's (NASDAQ: GLUU) presentation, there were some things to take note of, including some dropped hints about positive things to come in the near term for Glu. Here is a rundown of the highlights.
- Mobile smartphone use is at 1 Billion vs the 5 Billion user mobile phone market.
That 500% increase in users as people move from feature phones to smartphones doesn't cost Glu Mobile a dime. Additionally, the mobile phone market itself is still experiencing broad based and rapid growth.
- Hired 12-15 people to help improve monetization.
Monetization is Glu's one weakness. Their current monetization of their user base is below 1% while the industry average and Zynga's (NASDAQ: ZNGA) is around 2%. Their recent hire of Matthew Richetti as President of Studios and the additional people they just brought on should at least help them move towards the industry average. A move to 2% would completely double their revenues on a quarterly and annual basis as I touched on in my article "Glu Mobiles Acquisition Price Could Exceed $10."
The S-8 filed on Friday alluded to the new hires, so I was pleased to see that the new members were hired specifically to help with monetization.
- Barrier to entry is greater than investors think. Because of this the top 20 companies continue to grow larger and gain market share. Glu is one of those top companies that benefits from this.
Most investors are likely under the impression that the barrier to entry in mobile gaming is small. Eric Ludwig spoke to the challenges to getting into the space including having to support 10 different languages, and supporting the over 700 various devices on the Android OS.
This significant barrier is why Glu is launching their 3rd Party Developer platform. This platform enables successful games in specific markets to utilize Glu to roll their game out across the globe for a share of the games revenues. A truly beneficial service for all involved.
- Glu has had significant growth in the American, Chinese, and Korean markets, and they continue to remain focused there.
Glu also mentioned that the games brought to the 3rd party platform will likely be successful titles in those markets.
- Glu generates about 5M new downloads a quarter and are able to cross promote all of their games to their user base.
This enables Glu to spend only 18% of revenues on customer acquisition vs the 40% industry average. This ecosystem effect enables Glu to minimize advertising expenses, increase revenues made from PlayHaven's advertising and offers, as well as promote their 3rd Party Games effectively.
- Even their "flop" releases generate over 1.6 million downloads.
When Ludwig said this, he was referring to a "flop" as a game that failed to meet revenue estimates, but with 1.6 million downloads, none of the games can actually be considered a flop because it brings new users into the ecosystem. Once they are in, users may download another game in which they are willing to spend money on. Their download track record, enables Glu to make more money on advertising through PlayHaven as well.
- Glu is excited about the TV platform.
This opens a new market for them and costs very little to convert their games to the new format. Phones and tablets already have higher resolution than TVs and the conversion process will be very simple and easy when the time comes. New product releases such as the much talked about and elusive Apple TV, a Google TV, the Ouya, and others, will greatly benefit Glu. Getting into this new market costs Glu nearly nothing but could rake in some very nice additional revenues as monetization is likely to be higher on the television set vs mobile. Games on a TV will seem more valuable to users and thus they will be more likely to spend a buck or two here and there on the in-app purchases.
Glu already does very well on their computer based games and this trend will likely continue as these new platforms will be courting high quality developers such as Glu Mobile. Glu's great relationship with the various download stores enables them to maintain a 90% feature rate for their games, as well as earning Editors Picks and Staff Picks, which increases visibility and downloads dramatically.
- Glu is spending a lot of time exploring real money gambling. They have explored all possible ways to position themselves including partnerships and launching their own platform.
There was not a lot of time devoted to real money online gambling in the presentation, but it was the topic of discussion during the Q&A session. Of the 4 questions there was time for, 3 of them concerned online gambling.
The interesting thing here was that Ludwig kept repeating that no "Official Announcements" have been made yet on their plans for real money gambling... His inclusion of 'yet' may be hinting that some things are in the works, but have not yet been disclosed to the public or investors.
Ludwig did speak to the fact that real money gambling is relatively inexpensive and easy for them to do through their partnership with Probability PLC, and that little monetary risk is involved.
- Glu's launch of the "Samurai vs Zombies" slot game through Probability is a REVENUE SHARE and not a license fee.
This is very good news which is very good to hear as the revenue potential is much greater on profit share, and this is the first clarification investors have received since the Slot game was released. Glu also plans to launch games in other countries, in addition to more releases in the UK. The ease in which these games can be made in relation to the complexity of Glu's other games also tells us that they can crank quite a few of these out in a short period of time. Glu released over 25 games last year and plan to release 15 this year... There seems to be a lot of room for gambling games there which Glu has not given any estimates on. Also, since they have been under development since October of last year, there are likely a few more already in the pipeline. A slot game featuring Glu's Deer Hunter IP should be soon to follow, and will target the male audience, while the popular Stardom A-List IP will help draw a female audience.
- Glu plans to end the year with 14 Million in cash with no additional need to access the capital markets.
With small cap companies, this tends to be a concern to investors, and Glu has historically had to seek additional funding in the past for their acquisitions of Blammo, Griptonite, and Game Spy. This should help ease the mind of investors worried about dilution of shares, and also tells us that Glu is now ready to focus on growing internally instead of through acquisitions now that they have all the pieces they need in place.
As i said, nothing to shake the markets, but the presentation should bring in some additional large investors interested in getting into the space. Glu has pulled back a bit AH as nothing exciting came about from the presentation, and people were employing a sell the news mentality. Any dips will provide a nice buying opportunity as there are 8 more analysts that still need to raise their price targets.
Glu's small market cap has kept it off the radar for most investors, but with the launch of their real money online gambling game and recent share price appreciation, Glu is back on the map.
Day traders and long term investors alike have made some nice gains on Glu since i wrote my first article covering it while it was trading in the low $2 range. I have received a lot of very pleasant e-mails thanking me for my insights and research... and some not so pleasant ones from the shorts as well. My advice from here is simple.
Buy it and forget about it!
The small market cap, low float, shorts underwater and the day traders flooding into the stock will surely cause some large swings over the coming months. Those swings can be frustrating and scare investors into selling at the lows, but a long position will provide some very nice returns long term. The stock's formation of a double bottom which was confirmed last week puts the stock back on an uptrend and will likely rise to new all time highs by next year as monetization issues are being addressed, gambling revenues pour in, gaming comes to the television, and the company turns profitable this year. Additionally, if or when an acquisition does occur... it will be for a very nice premium over the stocks trading price.
Disclosure: I am long GLUU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.