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[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


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.

*Taken From App Annie on Jan, 8 2014

With the success in Japan I see very good things coming from Glu's recent partnership with one of Japan's largest gaming company COLOPL, Inc. Glu has made several strategic hires in Japan and Korea, and we can see how management expects app revenue from the APAC region surpass U.S. Revenue soon.

I also believe Eternity Warriors III will actually bring in more revenue than Deer Hunter 2014 this quarter. The game play is flawless and it has a much better monetization strategy with a much deeper upgrade system. Not only are there hundreds, if not thousands of different items you can acquire… they all need to be upgraded which takes a little money or a lot of time to acquire. The game isn’t easy for a change either, but there is no energy bar that limits how much you can play in one sitting. This creates much more value for a gamer, and they are likely to spend more on upgrades if they don’t have to wait to use the new items and are not limited on their play time. Then once you beat the game, you get to play it all again in a harder mode. Once you’ve done that, you get to try repeat the entire process with a new character such as the Mage, or Monk. It is a game that will have an incredibly long lifetime value and it doesn’t need the biweekly updates that Deer Hunter 2014 requires to keep people engaged. The second installment of the game Eternity Warriors II is still contributing over $2 Million a quarter, and it was released in August of 2012. The game is just standard game play for now though, and Gluon will really start to shine once Glu rolls out the tournaments, PvP, and AirPlay capabilities. When that update comes, people will really start shelling over money.

Alibaba App Store

Barron’s released a report today and I won’t spend too much time on it but it is a really big deal for all app developers in Asia. The market for mobile apps there is expected to grow by 77% and currently Tencent Holdings, Baidu, and Qihoo 360 own 80% of the app market, and take 90% of revenues generated from apps. Just to put it in perspective, the Apple App Store takes a 30% cut. With Alibaba moving into mobile game distribution, they plan to offer an 80/20 split to attract developers to their store. That move is a 100% increase in revenues for developers that place their apps in the Alibaba app store. Asian gaming stocks rocketed on the news jumping in excess of 30% in some cases. With Glu’s growing revenues from the Asia Pacific and China region, this should provide a very big and unforeseen boost to revenues going forward.

Big Names Recently Placing BIG Bullish Bets on Glu Mobile

I have been bullish on Glu Mobile for quite some time, but other, larger, more experienced investors and analysts are starting to jump on board as well. Here are a few.

MGM

Glu partnered with MGM (NYSE: MGM) late last year to develop games based on MGM's original IP. In turn, MGM received warrants to purchase $10 million dollars in shares of Glu mobile at $3/share. Glu then receives the $10 million, and the profits from the games. It is important to note that Glu was in the low $2 range when this deal was inked, meaning MGM was willing to take the bet, and Glu was willing to start developing the game confident that the warrants would be "in the money" come January. The first game from the partnership is RoboCop, and is set to be released this month, ahead of the movie release in early February. You can check out the official game trailer for RoboCop here.

Mark Gomes

Mark is an expert analyst with over 20 years of experience and member of Poised to Triple. He has had numerous picks that have tripled in a short period of time such as Himax (Nasdaq: HIMX) . You can hear from Mark here. Glu is one of Mark's top holdings currently and he has recently released some in depth articles covering Glu with his analysis of the company. Here is the first one he released on Glu to non-subscribing members. "Shares of Glu Mobile are Poised to Triple."

Jim Cramer's Real Money Pro

Here is the article that shows he initiated a new long position on January 7, 2014. "Picking Up Two New Techs."

Craig-Hallum

Upgraded shares of Glu Mobile from a hold to a buy and raised its price target from $4 to $5 on January 7, 2014.

Analyst Ratings

Glu carries an analysts' consensus buy rating with 4 currently at hold and 4 at buy. The average price target is $4.25 and the highest PT currently is $5. I believe that the low bar set will cause further price target hikes as Glu is currently well past some estimates and nearing upper estimates, providing more bullish upside in the near term.

Conclusion

Glu closed at a 52 week high on January 7th, and followed up with a confirmation on January 8th, closing above the previous day's high. It appears as though the typical Glu pre earnings release run has commenced. This time however, I am betting it all on black that we don't see that post earnings drop this time around. With the company set to post its first profit in its 12 year history on record setting revenues, new game launches this quarter, turning sentiment in the stock, and a 25% short interest to fuel the rise, I firmly believe the first quarter of 2014 will be the start of a tremendous year of growth in shares of Glu Mobile.

Disclosure: I am long GLUU, ZNGA. 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.

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