On Glu Mobile's (GLUU) Q4 and 2012 year end conference call management said they expected Q1 2013 revenues to be $17M-18.5M, with $16M-17.5M of that coming from smartphones. This forecast, which seems very negative considering Glu's 2012 Q1 total revenues were $21.5M, spooked many investors and has had some fired up over what they consider to be low-ball estimates. The call for $16M-17.5M in smartphone revenue does seem very bleak given that 2012 Q1 revenues included $17.2M in smartphone revenues, which would indicate that management expects this number to either be flat or decline from a year ago. In the call management gave several reasons for the conservative guidance for 2013:
1. "2013 guidance does not assume any multi-month top 75 grossing titles on the iOS and the Android App stores."
2. "We have not included any revenue from Glu Publishing nor our Probability Gaming real money gambling titles in this guidance."
3. Glu is shifting its focus from casual games to deepening the game play of its successful titles as well as developing real time strategy and role playing games.
Why We Shouldn't Worry
The second and third points are initiatives that will boost revenue in the future and should serve in the best interests of Glu in the long run, but management is correct when they imply that these will not do anything to boost sales in the nearest quarter or two. I think that the upside potential from these ventures will materialize later in 2013 as opposed to any time in the first half.
Real Money Gambling
Glu launched their first real-money gambling game with partner Probability plc in the UK on March 12, 2013. There are several reasons why I do not think this will add any substance to Glu's Q1 results:
1. The game is only available in the UK, a small market relative to the US.
2. The money brought in from this game will be shared with Glu's partner, Probability plc.
3. The game will have had only a few weeks to add to Q1 results for Glu.
So, while real money gambling might add significant value to Glu as the U.S. and other countries ease their restrictions, it is not likely to add much to the top line in Q1.
Glu Publishing is a service Glu will be offering to third-party publishers who wish to use Glu's expertise across multiple languages and platforms to reach new markets. In other words, developers who have seen success with a game on one platform or language will be able to work with Glu to bring it to a new platform or introduce the same game in a new country. This is a lower-risk strategy for Glu than developing their own games and management stated they expect 4 titles to be released through Glu Publishing in the second half of 2013.
Glu Publishing may be another exciting prospect for the future, but it is not something that will add any value for investors until later in 2013 when games are actually released through this medium. Again, this is something that does not add any upside to Glu's estimates for Q1 2013.
Examining Success on the iPhone
When analyzing the potential for revenues in Q1 we must look at what actually is producing revenues in Q1- Glu's games. This brings us back to management's first point, which is the potential success of Glu games that were available in 2013 Q1. Glu has stated that it gets 60% of its revenues from the iOS platform, so it would seem that looking at the success of Glu titles on the iPhone in 2013 in the U.S. should be a good gauge of how the company is doing. To analyze this I have put together a table showing the last 10 games that Glu released. Three were released in Q4 of 2012, while the other seven were released in Q1 2013. Here is what I found (using Appannie):
Glu Q1 2013 Game Peak Ratings (iPhone, Grossing)
|Release Date||Game Title||Q1 2013 Peak Rating||Peak Date||Rating as of 3/31/13||Rating as of 4/9/13|
|3/27/13||Frontline Commando: D-Day||97||3/31/13||97||73|
|3/13/13||Heroes of Destiny||99||3/21/13||162||196|
|3/6/13||Samurai vs Zombies Defense 2||113||3/13/13||280||294|
|2/20/13||Gun Bros 2||76||2/24/13||263||450|
|10/24/12||Contract Killer 2||93||1/4/13||178||175|
Management's estimate that there won't be any Glu games in the top 75 for multiple months in 2013 may be pessimistic, given that they had several titles in 2012 that achieved this feat, but it certainly seems that it will hold up for Q1 2013.
On the Q4 conference call CFO Eric Ludwig stated:
"...upside to our 2013 numbers exist from any title that persists in the top charts for a sustained period of time."
That, in conjunction with the lack of a surprise hit in Q1 and the limited upside potential from real money gambling as well as Glu Publishing, leads me to believe that Q1 earnings will not be hitting any home-runs for investors. I do have high hopes for the future and think that they are heading in the right direction, but I do not think the fruits of these efforts will materialize in the coming earnings release. The latter half of 2013 looks much more promising than the first half because that is when Glu's efforts will begin producing money for the company.