By Robert Irr
For the past decade, the top gaming companies like Electronic Arts (ERTS) and Activision Blizzard (NASDAQ:ATVI) operated on a very predictable formula. Ride their top gaming franchises, make small incremental improvements each year, and watch the profits roll in.
For Electronic Arts it involved updating their popular sports franchises like Madden, tweaking a few rosters, and adding a couple new game modes. Activision Blizzard stuck to their formula of gritty first-person shooters set in various wartime environments. If last year's "Call of Duty" game was set in World War 2, change the setting to a war torn country in the Middle East. Sounds simple, right?
That model worked to perfection for several years, but the gaming industry is now rapidly changing with the rise of casual gamers and mobile gaming. Some consumers want to play a casual game on their smartphone or tablet without having to buy an expensive game console and a pricy $60 game.
According to data from IDC, the global mobile gaming market is forecasted to reach $13B in revenues by 2014. With the rise of high-functionality smartphones, more and more consumers are buying apps on their handsets. Some of the most popular apps are independently developed games like the cult-classic Angry Birds.
What's even more surprising is that some game developers are increasingly rely on a "Freemium" model where they gave the games to consumers for free and rely on in-game ads to generate revenues. As smartphone/tablet penetration rates increase, more and more consumers will be shifting towards these casual games.
So who are the top players right now in the mobile gaming sector?
Glu Mobile Inc. (NASDAQ:GLUU) is one of the top companies in this sector with a variety of games geared towards the iPhone and Android. The stock has rewarded investors with an eye-popping 1 year return of 278%, but more upside could be on the horizon. With the rise of the iPad and Android tablets, Glu is beginning to design games that are optimized for tablets. If Glu can execute as well in the tablet space, there is even more upside ahead for their tablet-based games. Mobile app providers like Glu are always hot acquisition targets for gaming companies looking to make inroads into mobile.
Another key player in the gaming sector is the French based gaming studio Gameloft SA (OTCPK:GLOFF). Gameloft sells 83 different games for the iPhone/iPod touch and 36 games for the iPad touch. The majority of their games retail for $0.99 and are geared towards the casual gamer. In 2010, Gameloft's revenues increased by 16% to ~$203M. Gameloft also recently signed a long-term agreement with Qualcomm (NASDAQ:QCOM) to deliver games specifically optimized for Qualcom-based handsets. As the mobile penetration rate increases both in the United States and Internationally, Gameloft stands to benefit in a big way.
If you are looking to cash in on this massive and fast-growing app revolution, you definitely need to keep an eye on Glu Mobile and Gameloft.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.