Glu's GaaS Takes The Stock To New 52-Week Highs

| About: Glu Mobile (GLUU)

[Editor's Note, January 9: This article has been revised since original publication, as the author has made changes to the content]

It has been a full quarter since my last article on Glu Mobile (NASDAQ: GLUU) "Deer Hunter Rakes in Almost $1 Million a Day for Glu Mobile," and while longs that have held are sitting on 33% gains, I believe there is much more upside to come in 2014... here's why.

Deer Hunter 2014

Glu rallied on the strong launch of Deer Hunter 2014, but shorts started piling on and longs started to take gains as they were not convinced that the game had the staying power needed to really boost revenues, amidst the highly competitive mobile gaming market.

We cannot blame shorts or longs however, as even management stated in their guidance that they were still guiding conservatively, as they themselves had never had a hit on their hands like Deer Hunter 2014. Naturally, the stock price tanked on these remarks, even though the 4th quarter guidance of $32 million would be the best quarter in the company's 12-year existence.

Now that the quarter has concluded, the success of Deer Hunter 2014 is undeniable. The game (with few exceptions) remained in the top 10 Grossing and Free charts across all operating systems on AppAnnie since its launch at the end of September. The game still sits in the top grossing charts, and remained the #1 Free game on Mac for nearly entire 4th quarter. Debunking shorts bet that Glu would never produce a blockbuster in a highly competitive, hits driven business.

Deer Hunter 2014 Revenue

Now that the quarterly performance of Deer Hunter 2014 has been solidified, we can now make a better estimate as to what revenues the game was able to add to the bottom line for Glu Mobile.

In Glu's 3rd quarter conference call, management noted that Deer Hunter 2014 added $2.7 Million dollars to the company's 3rd quarter revenue in the 14 days it was available on iOS in the U.S., or an average of $192,307 per day. The average ranking during those 14 days was about 10.6 not counting the first half day of launch. When we remove the 1st two days which is a half day release and a rev up day that average rank improves to 8.6. Averaging the daily grossing ranks throughout the entire 4th quarter, we come up with a very similar ranking of 8.5. This justifies similar revenues on a daily basis, for iOS in the U.S. With this assumption we can then multiply the average daily revenue of $192,857 and multiply it by the number of days in the 4th quarter: 92. But since the Game was also available on android for a few days in the third quarter, I will lower the estimate to a very conservative $125,000 / day in revenue from iOS in the U.S.

$125,000 x 92 = $11,500,000

We can then take that number and multiply it across the other operating systems to estimate the total U.S. Revenue.

Revenue Contribution by Operating System

iOS: 63%

Android: 31%

Other: 6%

(figures taken from Glu's 3rd quarter report)

Since that $11,500,000 was generated from iOS, we can determine the total revenue generated by multiplying that figure by 1.58 (63% x 1.5873 = 100%)

$11,500,000 x 1.58 = $18,253,950

We can then take that U.S. revenue of $18,253,950 and multiply it by its percent of total revenue across the regions.

Revenue Contribution by Region

North America 40%

EMEA 23%

APAC 24%

ROW 3%

(figures taken from Glu's 3rd quarter report)

Since Deer Hunter was undeniably more successful in the U.S. than in other regions I will estimate that 65% of Deer Hunter 2014's revenue came from the U.S. instead of the 40% standard and will use that figure to calculate total global revenue. So we multiply $18,253,950 by 1.53 (65% x 1.5385 = 100%).

$18,253,950 x 1.53 = $28,083,702

This would mean that Deer Hunter 2014 alone will account for the majority of the $32 million 4th quarter guidance without factoring in the millions in revenue from other games.

Glu Mobile's management also mentioned in their guidance that they expect Deer Hunter 2014 to account for 50% of total revenues. Investor found this to be a tremendous amount of pressure on the game to perform well, and is likely the cause of volatility in the 4th quarter. Fortunately for everyone, the game surpassed everyone's expectations (including managements), and I suspect that the game will actually account for 65% of Glu's 4th quarter revenue. Given my estimate, we can then loosely ascertain an estimate of total 4th quarter revenue, by multiplying my calculated Deer Hunter revenue of $28,083,702 by 1.53 (65% x 1.5385 = 100%)

$28,083,702 x 1.53 = $43.2 Million

This estimate would not only beat the high end of guidance, but blow away revenues by some 35%. For revenues to come in much lower than my already very conservative estimate would almost be difficult in my opinion. There are some factors that can affect my estimates such as deviations from my percent platform/region estimates, but if you have your own thoughts just substitute them for mine above to come up with your own estimate.

Deer Hunter 2014's Facebook Launch

For the first time in Glu's history, it launched a game on the Facebook platform, stepping into Zynga's (NASDAQ: ZNGA) territory. In just a few days, the game surpassed 1,000,000 users and is likely contributing a lot of revenue from a previously untapped stream.

The best part about the Facebook launch however is that development doesn't cost Glu Mobile very much at all thanks to the company's Gluon technology, which enables them to easily port games to various platforms. In fact it takes only two people, two weeks to port a game to a new platform with Gluon. We will likely see many releases Like Robocop and the Kardashian game move onto Facebook and other new platforms, because of this new technology. You can also expect to see Glu release their games on OUYA and other Android gaming systems this year as well, as it has long been a plan of Glu’s to move to the TV.

Short interest

Short interest sits at about 25% in shares of Glu Mobile, with an average short price of $3.51, and 8 days to cover. The extremely high short interest came because the company was performing terribly until Deer Hunter 2104. Even then, shorts and some investors both thought that Deer Hunter 2014 would not sustain its rankings, but it did. Their second bet was that Deer Hunter was a fluke, and that Glu would be a one hit wonder. They were wrong again... they ain’t seen nothing yet.

Glu’s Launches 1st Full Suite GaaS Game

Eternity Warriors III was slated to be released in "Late December" of 2013. As Christmas passed, a downgrade came citing the delay and investors started to flee as they thought Glu was up to its old ways of delaying games from unforeseen challenges. Glu ended up releasing Eternity Warriors III on December 31st, a move that proved to me that Glu was very confident in its ability to deliver on its 4th quarter earnings estimates, without the added revenue from the new launch. Moving the game to the last day of December would enable the games entire revenue to hit the first quarter bottom line. Investors should be cheering on this move, as the company is no longer forcing games like Dragon Storm out the door to get them on the market, but instead have the luxury to refine them and have them ready to go when they want (instead of need) to launch them.

Since its release, Eternity Warriors has been trouncing up the charts, especially in Asia Pacific. In Japan, it is the #1 Free game on iPhone, #2 Free game on iPad, and #1 Free and #1 Grossing game on Mac. In Korea, it is the #3 Free and #6 Grossing game on iPhone, and the #2 Free and #3 Grossing on iPad. In China, it is the #26 and #10 Grossing game on iPhone and iPad, and the #1 Free and #3 grossing game on mac. The game is also in the top 85 free and grossing charts on Mac, iPad, and iPhone in the U.S. as well.

iPhone Ranking

iPad Ranking

Mac Ranking

Country

Free

Grossing

Free

Grossing

Free

Grossing

Japan

1

138

2

73

1

1

Korea

3

6

2

3

N/A

N/A

China

34

26

27

10

1

3

U.S.

31

59

45

85

3

26

Click to enlarge


You can see below that the power of this game, as it has moved up 111 spots to become the #1 most downloaded of any Free application in Japan.