The story of struggle of Zynga (ZNGA) and Glu Mobile (GLUU) has been quite similar as the inability to develop new games that attract a massive interest has pushed the companies into a downward spiral. But, after looking at both the companies' quarterly performance and future prospects, I believe that a turnaround is imminent. Both the companies delivered a strong quarter and managed to beat the consensus estimates on revenue as well as earnings.
Zynga reported a loss of $0.03 per share significantly lower than the consensus estimate of a loss of $0.09. Also, the company reported revenues of $202 million, easily beating the consensus estimate of $148 million. The strong quarterly performance instilled confidence in investors and consequently, Zynga's shares jumped 14% last week. The strong quarterly performance indicates that Zynga's new CEO-Don Mattrick- has been taking the right steps to turn around the company's fortunes.
Moving on to Glu Mobile, the company shared its earnings results last week. The company reported a loss of $0.07, beating the consensus estimate by $0.03. On the revenue front, the company reported a figure of $22.60 million, which was more than the consensus estimate of $20.30 million. The impressive quarterly performance of Glu Mobile was primarily driven by the success company's blockbuster title called Deer Hunter 2014.
What Does the Future Hold?
Following the success of real money gaming business in the United Kingdom, the shareholders of Zynga were expecting Mattrick to pursue real money gaming in the U.S.A. However, in the previous quarter, the company announced that it won't pursue real-money gaming license in the U.S.A. This news didn't please the shareholders, but keeping it mind the fact that it will be hard to break into the real-money gaming market in the U.S. due to the presence of incumbent casinos, this decision seems rational.
Also, in order to improve its product offerings, Zynga completed the acquisition of Spooky Cool Labs LLC. Though Zynga didn't pursue real money gaming license, this acquisition helped the company to expand its digital casino offerings with the launch a new game called Hit it Rich: Casino Slots. Apart from this, Zynga decided to shut down OMGPOP, which it acquired for $200 million in 2012, which isn't unexpected as many analysts projected that Zynga was losing $528,000 daily because of OMGPOP.
To accomplish growth, Mattrick is concentrating on enhancing Zynga's smartphone offerings. The mobile gaming industry has been booming, and the company is focused on improving the quality of its mobile offerings, rather than quantity, which will benefit it in the long run. To ensure the success of its mobile business, Zynga announced that it had hired Clive Downie to be its new COO. Given Downie's mobile expertise, it isn't surprising that he has been hired to supervise mobile game distribution. In his 15 years tenure with Electronic Arts, Downie oversaw the development of extremely successful and fan-favorite franchises like FIFA and Need for Speed. The positive reception of the company's latest game-CastleVille Legends-indicates that things are panning out nicely for the company and a turnaround may be in the cards.
Moving on to Glu Mobile, the company has finally delivered a winner with its new title called Deer Hunter 2014. As per AppAnnie.com, the game topped the iOS charts for free games download within a week of its launch and the stellar performance of the game is still sustained as it is gaining more than 278,000 installs daily.
As it is evident from the picture above, Deer Hunter 2014 is raking in more than $250,000 in revenue everyday in the U.S.A., only on iOS. The huge success of Deer Hunter 2014 and the raised guidance range has been driving the company's upgrades in the last few weeks.
Glu Mobile will be launching several new titles like RoboCop and an upgraded version of its popular franchise-Frontline Commondo-in the first quarter of 2014. The company will launch numerous other freemium games which employ the same technology as Deer Hunter 2014. The company will be concentrating on Games as a Service ((GaaS)) model with its GluOn platform to enhance its margins in the future. Due to the momentum of Deer Hunter 2014 and the expected launch of Eternity Warrior 3 Glu Mobile has raised its guidance for the next quarter significantly, therefore; I am confident that Glu will perform excellently in the future.
Analysts are estimating Glu Mobile's earnings to grow at a steady rate of 30% over the next five years, and I think that presently, it is a better pick than Zynga. Though I won't rule out Zynga, primarily because the company has more than $1 billion in cash, but I think Mattrick will take some time before he manages to maneuver a turnaround successfully. Even though Zynga's revival plan looks concrete, I think that investors should stay on the sidelines until the company is able to excite the marketplace with new games.
Although Glu Mobile doesn't have as much money (($27.2 million)) as Zynga, it has enough resources to fund the expansion into Asia and launch several new games on its GluOn platform, in the next quarter. So, I expect these new games, along with Deer Hunter 2014, to drive Glu Mobile's margins in the future, hereby making it a good pick.