Seeking Alpha
Long/short equity, value, growth, momentum
Profile| Send Message|
( followers)  

Summary

  • Glu Mobile shares have dropped recently after news of a secondary offering broke out.
  • Investors should consider this secondary offering as a positive and buy more shares of Glu.
  • Glu's latest acquisition and gaming pipeline looks impressive, and should help it perform well against the likes of Zynga going forward.

Mobile gaming company Glu Mobile (NASDAQ:GLUU) is having a bad time in 2014. Glu shares are flat so far this year, even though the company reported robust results for the first quarter. The news that Glu Mobile decided to go for a secondary offering of common stock further hurt its performance, as the shares lost 10% after the announcement.

However, investors should take this news as a positive. Since Glu is operating in an industry where there are strong rivals such as Zynga (NASDAQ:ZNGA), this might be a smart move by Glu. A secondary offering gives Glu more resources to invest in new games or buy more companies. The company's results have been strong and it has a robust balance sheet, which point toward the fact that the secondary offering was made to strengthen the business further.

Strong results already

Glu already has a solid cash position and no debt, so the company will use the proceeds of the new offering to strengthen its position in mobile games. Moreover, the company's financial performance has been par excellence, as in the first quarter, its revenue was $47 million, an increase of 90% from $24.7 million in the first quarter of 2013.

Glu Mobile also turned profitable, reporting non-GAAP EPS of $0.06 for the first quarter of 2014, turning around a loss of $0.03 per share last year.

A strong pipeline

The company is focused on making strong improvements in its business. Titles such as Deer Hunter and Eternity Warriors have gained solid traction and the company is looking to solidify its pipeline further.

It will be providing content updates to both Deer Hunter 2014 and Eternity Warriors 3 going forward. Glu has a strong line-up of new launches including Contract Killer 3, the Hercules theatrical titles, its first sports game, Tap Sports: Baseball, and Dino Hunter.

In addition, Motocross Meltdown is gaining traction with its target demographic, and is on track to exceed expectations due to an alignment of its core game play to consumer expectations. Frontline Commando 2 is also performing better than previous releases of the franchise.

Glu is focused on building the brand equity of its franchises, as this results in a reduction in user acquisition cost. The average lifetime value per install is expected to climb faster with a strong brand name. For this reason, Glu is focused on creating and nurturing franchises and IPs such as Contract Killer, Eternity Warriors, Frontline Commando and Stardom series.

A key acquisition

Glu is also strengthening its portfolio with acquisitions. So, it acquired PlayFirst, the owner of the Dash series of games, which, in aggregate, have been installed 750 million times on all platforms over the past ten years.

Glu's global reach and scale should accelerate and broaden Diner Dash's reach to a worldwide audience. Diner Dash 10 will be the first new major release of the franchise in approximately four years, and this should perform well due to strong pent-up demand.

Up against Zynga

The acquisition strategy of Glu should help it perform well compared to peers such as Zynga, which recently acquired NaturalMotion to bolster its gaming pipeline. Zynga acquired NaturalMotion for $527 million and this acquisition will definitely enhance its product portfolio. As reported by TechCrunch:

"With this deal, Zynga gets a good portfolio of current and upcoming games, a character with real franchise potential in Clumsy Ninja, a middleware business and a 260-person gaming company that is culturally focused on quality."

Hence, Zynga has been able to bolster its talent pool and gaming pipeline comprehensively with this acquisition. So, Glu is doing the right thing by going in for a secondary offering as this will help it improve its own workforce or even buy another gaming company.

Conclusion

Glu Mobile has a lot going for it. It has a solid gaming pipeline, and the PlayFirst acquisition brings another strong slate of games to its portfolio. The secondary offering is another bullish move as it will enable the company to fight against the likes of Zynga. This is why investors should consider capitalizing on the company's weak performance by buying more shares

Source: Glu Mobile: Time To Buy On The Pullback