Is Glu Mobile A Good Investment?

May. 6.14 | About: Glu Mobile (GLUU)


The company has changed its business model due to a shift in the mobile gaming segment with the rise of smartphones and other mobile devices.

Growth in revenues from smartphones and other mobile devices is strong for the company and it will likely report a substantial increase in revenues for the full year.

The addition of new titles through acquisitions and in-house development will allow the company to continue its revenue growth.

The mobile gaming segment is the fastest growing segment in the gaming industry at the moment. Glu Mobile (NASDAQ:GLUU) offers games for smartphones and tablets to multiple platforms including iOS, Android and Windows Phone. The company has developed and published a portfolio of action/adventure and causal games designed to appeal to users who purchase its games through direct-to-consumer digital storefronts such as Apple's (NASDAQ:AAPL) App Store, Google (NASDAQ:GOOG) Play Store and others. The company has created some bestselling titles over the years and increased its revenues at a rapid pace. The stock has gained over 29% during the last six months and over 10% year-to-date. Glu Mobile is one of the most successful mobile gaming companies in the sector and we believe it can be a solid investment.

Business Model

Glu Mobile has altered its business model over the last few years from its premium feature phone titles to recently adapted smartphone free-to-play games. Previously, for feature phone games, end users typically purchased games from their wireless carriers and were charged on their monthly phone bill, with 40% to 65% revenue sharing with the gaming company. However, the mobile gaming market has undergone significant changes over the last few years. Glu Mobile has followed the change in the industry and shifted its focus from feature phone titles toward smartphone free-to-play games.

Glu also started developing free-to-play games for tablets and advanced platforms, and the company intends to continue to devote minimal resources toward selling and supporting games for feature phones. The company derives a major portion of its revenues from in-app purchases in free-to-play games for smartphones, tablets and other next generation platforms. Free-to-play can be downloaded for free - but these games allow players to access a variety of additional content and features for a fee, and also engage with various advertisements and offers. These in-app advertisements are also an important, but at the moment a small, source of revenue for the company.

Are the Revenues "Gluing" Together?

Over the last year, Glu Mobile recorded revenues of $105.6 million compared to $108.2 million in the previous year. The decrease in total revenues was due to the decreased revenues from the feature phone game sales, which declined around 60% in the last year. Moreover, the increased customer migration toward smartphones has increased and the growth in revenues from the smartphone segment remains strong. The decline was moderately offset by an increase in smartphone revenues from $95 million to $100.3 million in the last year.

In the mobile gaming industry, a single hit title can lift a company. Similarly, a major portion of Glu's revenue generation is attributed toward the most successful title launch to date, Deer Hunter 2014 - launched in September 2013. The game hit 86 million installs since its inception and recorded a peak of over 4 million daily active users (DAUs). Going further in the smartphone industry, the company derived around 60% of its revenues from the Apple App Store and around 31% from the Android platform, with the significant majority of revenues generated from in-app purchases.

Moreover, first quarter earnings for the current year beat analyst estimates. Revenue for the quarter was up 90% year-over-year to $47 million, significantly exceeding guidance, while net income stood at around $5.4 million. The non-financial metrics also recorded a significant increase in the first quarter with DAU increasing to 7 million from 3.9 million in the same period last year. The company has also raised its financial guidance for the current year and is trying to get a larger market share in the industry.

Growth Prospects

In the mobile gaming segment, the companies are performing third party publishing to achieve efficiency. Glu Mobile also intends to grow its revenues from third party publishing through Glu Publishing, which will focus on building relationships with Asian and Eastern European markets to localize and publish those games. This, however, will lower the gross margins of the company due to initial or upfront royalty costs to the game developers. In the long-term, this will prove to be a solid move as revenues will be enhanced and the company will have a larger market share.

The recent acquisitions made by the company will also play a crucial role in the future growth of the company. The move to buy PlayFirst, maker of Diner Dash and Cooking Dash, will add more titles to the portfolio of the company. The Dash series has been downloaded more than 750 million times across all mobile platforms over the past 10 years. Moreover, the company is working on a James Bond titled game with EON Productions and MGM Interactive. This could be another potential growth driver for the company since the name of the title has the potential to establish another major franchise for the company.


Glu Mobile is an important player in the mobile gaming segment, and the recent moves made by the company show that the management is proactive in responding to the changes in the sector. The revenue growth from smartphones and other mobile devices is strong and it will make up for the lost revenues from feature phones. Furthermore, the results of the first quarter show that the company is on its way to grow its revenues substantially during the current year. With the growth in the mobile gaming segment still at high-rates, we are likely to see a substantial rise in the stock price for Glu Mobile. We believe that Glu Mobile will be a solid investment for the medium-long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.