Glu Mobile's CEO Presents at Bank of America Merrill Lynch Global Technology Conference (Transcript)

| About: Glu Mobile (GLUU)

Glu Mobile Inc. (NASDAQ:GLUU)

Bank of America Merrill Lynch Global Technology Conference Call

June 4, 2013 12:15 pm ET


Niccolo de Masi – President and Chief Executive Officer

Unidentified Analyst

Thank you for coming today. Very pleased to have Niccolo de Masi, the CEO of Glu Mobile. He’s going to do a 10 to 15 minute presentation and then I’ll have a few questions and then we’ll open it up to the audience. So please take it away.

Niccolo de Masi

Right. Pleasure being here. Thank you all for coming. Many of you probably don’t know Glu and a couple of you in the audience I recognize as a tenure experts. So I’m going to keep this very high level, only focused on the underlying macro trends that are impacting Glu’s growth. We’ve been going since 2001; public since March 2007. And really we’ve experienced probably almost every platform transition you can imagine in the mobile gaming space.

We started out in 2001 probably making games like snake on your phone, if you can remember that black and white first generation Nokia devices. By 2007, 2008, 2009, we were making games on feature phone devices; things like Call of Duty there you can probably barely see in the left side of the screen. But, of course, the past three years has only been about a number of transformations and revolution is much more than evolution.

We’ve moved, in my estimation, for gaming being only relevant to people who have no other device with them. So compelling in relative terms in 2009 to today’s smartphones and tablets whereby really gaming is now competitive on a new quad-core mobile device with what the last generation of console quality gaming can be.

So smartphones and tablets are our bread and butter. We have evolved our business model from a paid download one to a free-to-play one, and games today are of course becoming more social, more game as a service, more persistent. Smartphones are, of course, going to be the be-all and end-all of devices for everybody in the world some day. At the moment, most people in the first world country developed nation have a smartphone and they are starting to get tablets as possibly additional or even replacement devices for their PC or their laptops.

Over the next few years, we’re going to move from the approximately 1.5 billion smartphones we have to something closer to $5 billion. And this is one of the most interesting underlying growth trends for Glu to tap into, because when we started in this business, there were of course zero smartphones and there were 3 billion or 4 billion feature phones. Over the last three years, we’ve gone from very few smartphones to 1.5 billion and it’s not a case of this that’s just when we’re going to get to a market that’s three or four times larger as today.

Tablets are exciting new addition to the Glu family of addressable consumers and devices. And even though tablets are making up a minority of the mobile device ecosystem right now, it’s actually making up something like half of our revenue. So it’s disproportionately capturing and monetizing consumers for mobile games largely because of the fidelity that a company like Glu is able to deliver on a tablet device.

Drilling a bit more into what Glu actually does, we operate two business models. For the last 11 years, 12 years, we’ve been just a first-party studio, we own and operate and develop all of our content ourselves. This is a very high gross margin business, 90%-ish plus and the upside here is, of course, delivering on a hit.

Hard to do, we’ve never had a hit as enormous as things like GungHo’s Puzzle & Dragon out of Japan or Supercell’s Clash of Clans. But we believe our chances of producing a hit are always increasing. In the last quarter or two, we’ve started to build out a complementary business in the form of our third-party publishing play. This is a very different risk profile although a complementary one to first party. And on this one, we’re taking about 50% cut of the overall revenues for doing the publishing distribution of titles developed predominantly off of our books.

So different risk profile, but leveraging the same fixed costs and assets of sales and marketing. And as economies of scale here for Glu growing both the first and third-party business because of the fact that we get more power in the value chain from distribution partners, the Apple Store, Google Store et cetera.

If you look at our total non-GAAP revenue year-on-year, going back to the pre-IPO and we IPO-ed in 2007, you can see the last three years have been a really clear trend of effectively replacing feature phone revenues with smartphone revenues. We’ve had some lumpy quarters when subject to sort of game performance, but year-on-year, it’s a very clear trend. We have effectively run-off the feature phone business and replaced it year-in year-out with the smartphone business and the company is return to year-on-year growth.

Gross margins have climbed quite quickly for Glu as we’ve done less licensed IP from Hollywood more original IP, and that’s a big benefit obviously to be climbed and early to platform transitions where you have a chance to build your own brands and build content tailored for new tablets and smartphones that really capture consumer’s imagination.

Other extreme trends that really reflect the broader smartphone feature phone transition for Glu, you can see in our regional revenue distribution. And going back to IPO, you can see that the clear shift has been towards Asia. We are making more money in Korea and China than we ever have in our history, and a lot of that’s due to the fact that the new smartphones and tablets and so on are often being the first computer or primary gaming device that people are purchasing.

You can see that Latin America has shrunk for us. This is a market that will likely return to growth as we get through a bit more of the smartphone upgrade cycle. North America has been fairly flat. You can see a hit in there in the form of Deer Hunter Reloaded for us in H1 2012, growing disproportionally in North America. And Europe is also compressed a little bit. This is probably partially macroeconomic effect, but also a bit of a lag from the feature phone, smartphone upgrade cycle.

Glu’s strategy is very much to partner closely with what we believe are the winning players and the long-term gaming platform wars, people like Apple, Google, Amazon, Microsoft software, and ultimately hardware players probably in some cases.

Glu’s games tend to use the latest and greatest technology from companies like Apple and Google. We were the first company that put games on the Android Store back in 2008-2009. And because of that close partnership, we get a lot of effectively free promotion in the form of featured placement for our games in their stores.

Audience has grown quite clearly with the growth of smartphones and this is taking you back to 2011. We’ve done something like a 2.5x increase in audience size over the past two years. And you can see they’re up to something like 39 million, 40 million monthly active users. We have something like 50 million new installs of our games every quarter. So over the past few years, we’ve done something like 400 million installs of our various games across this smartphone ecosystem.

Just spend a couple of minutes talking about the future of mobile gaming, which is probably as of now more interesting from many of you in the audience. In the last few years have seen the rise of social gaming and social gaming means something slightly different to almost everybody in the gaming ecosystem. Zynga very much identified itself with this. And I would say they identified it with low fidelity 2D games that had a primary focus on resource management. What’s actually happened from our perspective is that social gaming has broadened out the ecosystem. It’s brought new players into it, which would never have previously played games. But the future of gaming is really going to be captured by people that are strong in four key success areas and those are core game play, production values, reach and monetization.

In the last few years it is impossible to be moderately successful whether you’re a Zynga or Glu or a host of other companies in the world by being stronger, one or two of these four pillars. Glu has been very good at core game play, production values and reach. We are currently heavily focused on the fourth, improving our monetization systems and growing the amount of revenue that we generate for every daily active user. The future though we believe belongs to companies that are strong in all four areas. And we believe that core game play is moving from single player to multi-player in nature, longer sessions, more immersive games. Production values are getting more 3D, more realistic.

Reach has now not just about the iPhone, it’s about tablets, it’s about Android, someday it will probably be about Windows 8 and Amazon as well. And monetization systems are becoming more complex. The winning companies I believe are going to have to be strong in all four pillars and Glu is very much focused on strengthening our fourth.

The future we believe is very much about a quad screen gaming experience. Glu is currently covering smartphones, tablets and we’re starting to cover things like the Mac Store. If you look at Apple, Google, Amazon, they’ve got undoubtedly a five and ten-year plan that involve a single store front ecosystem available on all four device sets.

And so companies like Glu are actually quite disruptively positioned in the overall gaming ecosystem. We have a cost base built for smartphones and tablets, but we are producing games with enough pixel density to already look great on HDTV, and I’ll show you an example of that in a second.

So, ultimately as we see that companies like Apple and Google and Microsoft dominates gaming platforms and companies like Nintendo and Sony probably shrink away or at least shrink share. It’s going to make Glu disproportionately interesting in the competitive landscape and of course as an investment.

So with I’m going to just ask our colleagues back here to play an example and show you the trailer for a game called Frontline Commando D-Day, which is the second game we’ve brought out in the Frontline Commando series; clearly our highest daily active user games. And you’re going to see great examples of a quad screen game. You’re looking at this in exactly the same fidelity that plays in your smartphone and tablet. And mostly if I look at this and say I don’t know you can have a console game on your tablet, your phones, you absolutely can and it’s free-to-play. [Video Presentation] Target of the younger female demographic like many of our games are.

Unidentified Analyst

Okay, thanks for that. And I guess I’ll just start with the high level question. EA, of course, has a sizable mobile gaming business. Zynga is moving towards a mobile gaming business and you might be one of the biggest pure plays out there. Can you talk about mobile business as attractive for investors, what you think really makes it interesting for investors, is it high margins, is it the growth outlook or maybe just kind of tell us all the things you think are mostly interesting about just investing in the mobile space?

Niccolo de Masi

I’d go back to many of the sort of things I’ve tried to layout in the last 10 minutes. So most interesting of course from our perspective is the fact that you are getting to an ever enlarging audience and so whilst the console world had maybe a 100 million sales of a platform PS2 obviously, that was kind of interesting number. Today, we are looking at 1 billion addressable smartphones and tablets are going to be on top of that. So this great sort of secular rising tide for me makes mobile the best and safest place to play because rising tides can often bail you out if you have slate of games which, for example, are maybe missing the consumer trends for example. You just have raw growth and underlying addressable audience.

Second thing I’d sort of point to is the fact that I think you’re seeing a shift in the winners of the platform wars. And the winners of the platform wars are going to be people that win the mobile wars predominantly. So, we’re kind of a company that’s already betting with, I believe, the companies that win the broader gaming platform battle and that’s very much an Apple, Google, Microsoft event, not a Nintendo, Sony battle. And the reason that matter is there’s an advantage in taking 500,000, 300,000 games from mobile to tablets and then laptops and then your living room because you already got the in-built developer base and content.

And so you’ve seen that happens to smartphones and tablets. It will happen in living room and I think it will be very difficult to compete if all you have is 30, 40, 50, 60 console only games in a living room as example of that. So I think we’re betting with the winning players. We have the best secular trend.

And right now, obviously, the most attractive pieces, the relative gap between production values and revenue opportunity is widest, on average. Now, I don’t want to lead you into the impression that you can produce a game for $1 million and you’ll guaranteed it’s going to be a hit and you’re going to get fifty back.

But the market has gone quite exponential in the past, let’s say, four to six quarters whereby the power law is getting steeper and steeper and steeper in terms of how well you do versus how many games there are, but it’s starting to show some real absolute dollar I’d say hit power. So a year or two ago, a $10 million, $20 million, $30 million game a year was a big deal. We’re starting to see things come out of GungHo games and Puzzle & Dragons in Japan where you could make $50 million or $100 million a month. And so all of a sudden, you’re getting some of the first mobile games out there that are competing in dollar terms with outright what used to be the console industry.

Unidentified Analyst

Okay. And in traditional console games, people love franchise value.

Niccolo de Masi


Unidentified Analyst

You have a lot of stock value for that.

Niccolo de Masi


Unidentified Analyst

How sustainable are mobile franchises or your current mobile audience and kind of keeping them engaged with new pipeline of games over time, how do you think about franchise value?

Niccolo de Masi

Franchise, it’ a good question, I mean, we would select often Glu on the fact that it seems that the half-life of gaming content entertainment value is the shortest across the entire entertainment ecosystem. So if you look at the half-life of music and books, you probably get those longest and you’ve got films that are maybe five years or 10 years. Games generally are two years, a year or two. nobody wants to play Call of Duty the last one from a few years ago.

So I think the half-life is shorter in gaming generally. When you look at console versus mobile, I think one of the fallacies that tends to rise [intellectual] anyway is, you have franchise value from films and console because it’s a little choice. If you put out 30, 40, 50, 60 console games a year, yeah, the top 10%, 20%, 30% of them are things that most of the people that have one of the consoles have bought and it’s recognized. Mobile gamings got 30,000, 40,000, things that are going out a year.

So your challenge in building a perennial sort of brand, so to speak, are harder on the one hand; on the other hand, it’s a lot easier to compete with an established brand, because consumers want to flitter with choice and they also want to flitter with choice, because there’s no barrier to entry with the free-to-play business model. So we think the most important asset for Glu at the moment is our audience base. We’re building up that monthly active user so that user base is an important asset for the company. We can use it to market new titles. It’s something which we know we can always fall back onto kind of lift the floor and raise the ceiling of every new title we launch.

There have been very few games I think other than maybe Angry Birds that you could say have built some franchise value thus far. But I don’t think that’s going to be the long-term sort of status of the industry. You’re going to definitely see, like you do in the Internet. The mobile ecosystem right now for gaming is a lot closer and heading closer to what the Internet is than what you’ve seen with console in terms of hundreds of thousands of choice becoming millions some day. There will still be eBays and Yahoo!s and so on that become network effect brands, but it’s just very early, it’s like the Internet in 1995 right now.

Unidentified Analyst

On one of your slides you showed looked like feature phones has been a big headwind for the company for the last four or five years and smartphone revenues are almost 100% of revenue if you look at that slide.

Niccolo de Masi


Unidentified Analyst

As you look at that it could make sense that you’d say if you can keep growing the smartphone revenues, you’ll start growing again as a company. How do you think about that and can you talk a little bit about your 2013 guidance and what’s incorporated in there?

Niccolo de Masi

Sure. So this is the last year of our feature phone revenues trembling down to almost nothing by the end of the year. And to be clear, this is a business that I stopped investing in January 2010 when I arrived at the company. So we deliberately made the choice to focus on the light at the end of the tunnel so to speak as opposed to try to support the past and not emphasizing the future. And there is only one option there; you have to focus on the future.

So this year, we’ve got a couple of things going on. We have an evolution from simple free-to-play to what we’re calling game as a service. So we are building a bigger chunk of our portfolio as online only games, which are going to be more persistent, more alive, more frequently updated. We are also focusing on a fewer better bigger games so to speak.

And so there is a little bit of internal studio evolution that’s going on. There is a continued decline in the feature phones going on and there is a start of the third-party publishing business. So guidance right now has a much bigger H2 in 2013 and H1, and a lot of that’s because of the release slate as well as these evolutions we’re talking about. But this is, in some ways, a year which is not showing total top line growth, growing blisteringly on 2012, but we do believe that it’ll be the start of an H2 2013, the next leg up in growth, I would call it.

So, a lot of our growth the last few years, you could almost draw unparallel with penetration of smartphones in first-world developed nations. And the next leg of growth is very much the next billion of smartphones and tablets which are predominantly in emerging markets. One of the reasons why Glu has been early to localizing our games in 10 or 12 languages, we have the bulk of our employees not in our headquarters in San Francisco, we have big offices in Moscow and Beijing, for example, and we’re expecting to capture a good chunk of the next wave of growth from those regions.

Unidentified Analyst

Okay. And it seems in the mobile industry a disproportionate amount of revenues maybe goes to the top 5 or top 10 games, you might agree with that. How do you get a hit in this industry and maybe talk about your pipeline for the next year? What your chances are and what you are really focus on genres or increasing your chances to have that?

Niccolo de Masi

Sure. So if I looked at, let’s say, let’s look at sort of the three competitors maybe Zynga, GREE, Glu. You have a nice continuum of DAU and ARPDAU. So you’ve got Zynga with huge DAU, $50 million or something, growth are below average revenue per daily active user. You have GREE with relatively modest daily active user base, probably millions, not tens of millions, huge average revenue per day and the driving $1 billion of revenue year or more from a user base much smaller than Glu’s or smaller, we’re in the middle.

So the overall strategy for H2 2013 and 2014 is step one, hold your audience flat and grow the average revenue for daily active user. And we have a quite modest ARPDAU, something like $0.06 and put that in comparison, companies like GREE and DeNA probably have some games with $0.60 ARPDAU. Other companies like Zynga may have $0.01 ARPDAU, but a huge audience. So we believe there’s a much more science to moving ARPDAU up than there is to getting down in the first place.

So we think we’ve cracked the harder part in the long-term, which is do build games with great core game play (inaudible) people who want to download them. 50 million installs a quarter is a good number, and 40 million monthly users is a good number. What we’re focused on right now is moving the $0.06 ARPDAU up to maybe $0.09 or $0.10 or $0.12 and that obviously is a direct corollary with our revenue. And as a business that is not far off breaking even that makes us interestingly profitable if and when we can achieve it.

To achieve it there’s kind of two or three things we’re doing. We’re driving deeper monetization system in the old games; some of it is about retroactively trying to fit games like Frontline Commando with updates that you can make a little bit deeper on the monetization front. A lot more of it’s about what are the new releases that are coming out in the fall for Glu going to do on that game as a service topic, to be better persistent games, deeper monetization systems, online only games, more frequent content. So a new generation of titles, we believe, will naturally have ARPDAU that’s probably posted double what it’s been in the past for us. We had a couple of nice proof points in the first quarter of this year of games like Heroes of Destiny or Dragon Storm that had $0.15, $0.18 ARPDAU to $0.06. So we can do it.

The challenge is how do you trade off DAU and ARPDAU? And so the sort of leg of it is new styles of games. We recognize that the demographic that wants to play a Frontline Commando is probably a hardcore console gamer who naturally prides himself or herself on skill. We want to cater for that player and get effectively more money out of them long-term, but we also need to build a style of games that caters for people who want more passive game play. So people that want to do something where they’re investing in their city and, yes, sure, maybe attacking other cities, but on their own terms, on their own time without having to take a 30 minute chunk of their day out.

Unidentified Analyst

Okay. I’ll ask one more and then we’ll open it up. Anything in the pipeline that you’ve publicly announced already that you think is most interesting or we should watch for on game release?

Niccolo de Masi

Sure. We announced in our Analyst Day last Thursday that we had the next Deer Hunter title out in the fall. We had the next Eternity Warriors title out and the next Frontline Commando title are all due out last few months of the year. And those three will be game as a service title. So we expect them to all have elements of online only play perhaps a synchronous PvP mechanics, for example, that will drive higher ARPDAU. But we believe the game has been evolved in a way so that will maintain its daily active user base. So, excited by that. We’re also excited by other things that are happening in our broader ecosystem. There is – the rise of tablets is good for Glu. The rise of variable computing may not impact revenue-wise this year, but that will be something that we consider part of the mobile ecosystem, a broader mobile ecosystem for sure.

And the last couple of things that we’re always early dabblers and looking for an inflection points are the real money gambling and real money skill-based gaming. So we’ve been the first public company doing both of those. We are the first company in real money gambling in the UK through a partner using our IP. So we have a couple of slot games out in the UK that allow you to actually play a game of chess for real money on the Apple Store.

And last week we announced that we’d be the first company on Android offering skill-based mechanics and prizes for the last Deer Hunter Reloaded release we had last year. So it could be interesting inflection points for Glu. It may not make a big difference to the numbers this year, but certainly trends that can help bolster ARPDAU for us.

Unidentified Analyst

Okay. I have more, but let’s just see if there is any questions out in the audience. I don’t see any.

Niccolo de Masi

Raise your hand.

Unidentified Analyst

While we’re waiting, a little bit about advertising.

Niccolo de Masi


Unidentified Analyst

I know it’s a small focus for the company, but do you think you are under monetizing the advertising potential now and could that be something gets you a little closer to profitability?

Niccolo de Masi

Yeah, that’s right. So, it’s not the number one focus for Glu, but it’s been a bigger focus for Glu than many of our competitors historically. So we’ve always been early to utilize new ad units in mobile. And a lot of the reason for that is, we make high production kind of hardcore counsel games for mobiles and smartphones devices and a lot of that audience base is kind of willing to watch a video trailer while they are playing that experience or they’re willing to sort of conduct some kind of action, which may give them a reward in the game.

So we’ve had as much in some quarters. We’ve had up to 30% of our revenue in some quarters coming from advertising in some form. Recently it’s been more like 15%. But we actually think that in addition to the growth in emerging markets in the smartphones and tablets for the next few years, you’re going to start to see video ads and video advertising particularly become more relevant for mobile.

So you’ve got eCPM quite a gap right now between mobile and Internet or online. That has to converge. And there is no in long-term when you have most of the people on Facebook accessing Facebook through mobile devices that you won’t start to get eCPMs converge and what that will mean is mobile moves up and Internet moves down most likely, that’s probably the way the supply and demand will work.

So we think there is room to run on video ads particularly and we think there is room to run on eCPMs generally in mobile. And we want to make sure that we are there and we are monetizing that as best we can, but it will be balanced by us optimizing total revenue for the company. So we are trading off our EP revenues in some cases with other forms. We are going to do whatever maximizes the total pie all the time.

Unidentified Analyst

Do you think video advertising is disruptive on mobile devices whether you’re are on a game or on Facebook or something like that? And would you only show it to people who are paying you, would you optimize it?

Niccolo de Masi

We undoubtedly will. Interestingly enough, I think, most users find a video trailer of a new film a lot less interrupting than also to other kind of banner ads for example. It’s kind of a cool – if it’s a good experience in high fidelity, a lot less of interruption than other options. No one says give me more ads and that’s true (inaudible) So you have to be sparing about it. But I think there is a recognition and there has been a conditioning obviously to an overall ecosystem, which right now maybe only 1% or 2% of people pay for things and so the other 99% just like with a website or web portal, they recognize there has to be some monetization for the service to persist.

Unidentified Analyst

Okay. On the gambling opportunity, is there a question out there? I was wondering.

Question-And-Answer Session

Unidentified Analyst

Can you talk a little bit about convergence of – you talked about gaming as a service with other digital entertainment as a service, which we’re observing obviously. You’ve got a lot on the streaming side and everything, multiple accounts for users and how you think some of this consolidates or converges possibly?

Niccolo de Masi

Sure. So we do believe the game as a service have parallels with Amazon being the disruptive retail and software kind of eating people and eating all sorts of services in the physical world. In the long-term, yes, and the complexity in a game as a service with a big user base is as great as it is for whole host of Internet service as you see out there and where the challenges for a company like Glu is we put out 12 games a year maybe internally, each one of those is as complex in many ways is building of entire service as something like Pandora for example, which is really a single app, it’s a big licensing arm to the operation. So there is a similar amount of complexity goes into it and there is a similar amount of upside in my opinion.

So in the long-term, the gaming ecosystem that’s going to have fewer bigger companies, but it’s going to still have a vibrant startup seen exactly like the Internet functions to date, and it will have that escalator of small companies getting gobbled up by larger companies. We think that there is going to be ubiquity for that service. So if you like to play for Frontline Commando D-Day, you’re going to want to play on your phone, your tablet, your PC in your living room and, of course, Apple and Google might sort of try to lock you into their ecosystem.

I don’t know if there is going to be greater conversions than that between other forms of entertainment. I can imagine there being cross-pollination so who could add on games that are relevant for the content of their featuring. And I think that there will be a number of approaches across the ecosystem. So you will have single brands, you will have film Studios, you will Harry Porter who has got a lady who has done very well behind that and sort of going around publishers, she may well make her site a kind of one-stop shop for content and maybe film studio does it as well. But there will still be room for the sort of horizontal play. I sort of think it’s quite likely that what you see today rhymes a lot with where you are going to be in three years.

So the Apple Store will get bigger, Google Store will get bigger. Apple, Google, Microsoft, Amazon are all competing with each other to offer music, games, TV, films, no doubt about that. And you’ll have Netflix trying to get into the act et cetera, et cetera, et cetera. So there will be a battle for supermarkets I think, but Glu’s perspective, obviously, is we’re not in that bigger battle. We re in the trying to build game services that can piggyback on the kinds of things these other much larger companies than us are trying to ultimately provide to their consumers. Does that cover your…

Unidentified Analyst

Yes. Could we talk a little bit about gambling opportunity or real money gaming in the U.S. just starting seemingly to open up, how do you see that? Could it be material in three to five years for the company?

Niccolo de Masi

Yes. So Glu is actually the first company doing skilled base gaming for real money and the first one doing games for chance for real money and we see more short-term opportunity in the skill base. The primary reason for that is if we go in 37 states, we’re already right now today, just like playing the chess tournament with the cash price or a fishing tournament or hunting tournament or bowling tournament. That’s called skill-based gaming for cash.

So Deer Hunter Reloaded is going to launch next month and allow you to have cash tournaments and that’s going to be entirely analogous to a real Deer Hunting tournament in a lot of ways. That’s something which I think will cater to the psychology of a skill-based gamer who’s already in the title, a lot better than Glu trying to get into the casino space where we don’t have a freemium casino audience. So our freemium audience is in skill-based games. Skill-based gamings are beautiful fit for Glu game. It’s also legal in 37 states right now.

I think the number of states that do skill gaming will grow and I think it will grow as fast on a skill side. Probably, we’re in a real money side in the U.S. There’ll be some exceptions. I mean, right now, look at the states rushing to get in front of each other, Nevada and Delaware and New Jersey and I’m sure there will be one or two more that try and get there quickly. But there is a quite complex legislative lobbying situation going on in the states – state by state basis really – it’s quite the bespoke in the reservations we’re involved, there is different legislature positions. The federal government is obviously throwing at kind of over the fence in the past couple of years with regard to sort of states deciding what they want to do with it and because they’re always interest in that, I think it’s going to take longer than people think for the big states to actually legalize.

Let’s be honest, no one goes to Nevada to gamble on their phone. They go for a different experience. so you gamble on your phone when you’re at home. So to make money in real money gambling, you’ve got to have New York, Texas, California, these kinds of states have to kind of get knocked over. And I think those are some of the harder ones to actually liberalize because of the different interest that are in there. So our bet in the next two years is going to be on the skill-based cash side.

Unidentified Analyst

All right. And then maybe the last one just talk about your development talent and what physicians you to maybe become a leader over three to five years on the mobile space and what you’re most proud about on your development side?

Niccolo de Masi

So we have about 550 employees in total, something like 400 of them are in our internal studios. and they’re quite mature battle tested studios, I mean, many of them been operating for the better part of the decade. we’ve approached this space as you can see to our history, evolving how we need to do effectively go where the money is. I’d like to put it. so the money has moved to smartphones and freemium, we’ve moved there.

Now the money is moving into games and the service, we have to move there. We’ve been great at core game play; we’ve been great at production values. we produce games that have probably highest fidelity in the space right now. We’ve also been great, because of our legacy at reaching the most number of handsets and consumers. So we cover 750 different devices. we cover the whole Android ecosystem, the whole Apple ecosystem, we cover a lot of languages, we cover a lot of stores. One of the things you can always do to raise the floor and ceiling of a title is to make sure as many consumers as possible can find it, and download it and pay for it.

So we’re in all sorts of stores around the world at a local level. We announced last week things like partnerships with the T-Store in Kakao in Korea, which are outside of Apple and Google, but they have a significant user base. In China, we have already half a dozen local Android stores because Google is not doing business there so you’ve got China Mobile and Telecom, Unicom and Tencent and various other players that are trying to have that sort of Andriod store.

So reach is a big piece of our path that’s definitely part of the future. We have a dedicated team around that sort of podium and optimizations and fragmentation. And we’re a company built around ensuring that we branch code as we develop games to enable us to most efficiently reach the ecosystem we want to. And that’s been a feature in the last 10 years that has definitely here to stay.

There has always been a debate in our space whenever you see some like an iPhone come out and people go, everyone is going to get one, that’s the only thing that’s going to be, it’s like the PC market and it’s going to be – it’s 90% market share. And people believe that I think when I started at Glu, certainly in Silicon Valley, a lot of people believe that because a lot of (inaudible) wander around and go I have an iPhone instead all my friends. The reality of course is most of the world is going to end up getting an Android device so they get cheaper devices.

And so that ability to reach 1 billion, 2 billion devices in all of the different permutations of operating system, hardware, screen size, that's going to still be important. The phone market is like the car market not like the PC space. And by that I mean, its fashion plus utility every time you make a handset decision. So our development process is designed to enable people to be flexible about addressing that fragmented and constantly increasingly fragmented ecosystem and that will serve us very well.

The high production values we very much believe as I said, that that's where the market is going. It's not – the film space is generally not going more black and white less sound, there's always (inaudible) movie like The Artist that comes out retrograde, win Academy Award, but you can't say that Avatar is not what the future is for animated films. And so same things happening for gaming, we’re very much off that curve of Moore’s law, new hardware, high fidelity. We’re proud of the fact that our games get great reviews (inaudible) and they have great core game play and they have effectively what I’d call a high organic coefficient, people download them with very little marketing spend.

So 92% of our installs are organic, that’s a great number when you get $52 million or whatever last quarter, right. Many of our competitors are the opposite. they have to spend all the money to get most of their installs at least half of them. Our games are kind of naturally popular. And that to me is, maybe the most important rate limiting factor. If you’re running a film studio, you generally don’t say that you’re going to win, because you have a marketing advantage or your film has higher lifetime value than the other studios.

you say you’re going to win, because it’s popular and the organic coefficient is high and people want to see that film. We have that. The piece we’re working on is the monetization systems and I am relaxed about that, because we’ve been hiring talent from companies that frankly have been better than our monetization and we’ve been driving that scientific approach into our games, so we have all four of the legs of the stool there.

Unidentified Analyst

Okay. You did mentioned sort of that Android versus Apple

Niccolo de Masi


Unidentified Analyst

People are very interested in that. How is the Android and Apple as far as ecosystem for Glu? What’s easier and more challenging and then how is the ramp up of Android relative to Apple right now?

Niccolo de Masi

So we post this on our quarterly numbers, if anyone interested, you can go to and see a quarterly breakdown of iOS and Android. The biggest growth in Android happen when they launched in that purchase in March 2011. Since then it’s been steady growth commensurate with the number of devices in the market. You definitely make less money per Android device than you do per iOS device.

There is a better purchasing ecosystem that might be a more inclined demographic on iOS devices to put out games and spend on them, they’re on Android. But there’s kind of a relentless trend here, which is $900 million-ish Android devices, $600 million iOS devices in the long-run you have to fancy the chances of Android, certainly it already have overtaken iOS in device number, but in absolute revenue for Glu, it will catch up. The only question is when. And it’s hard to predict which quarter exactly it will happen, but in the next year or two, I think the next rising kind of merchant growth, it’s going to favor Android given the markets we’re talking about.

Unidentified Analyst

Great. It looks like we’ve used up that total 40 minutes. I really appreciate you spending time with us. Let’s get to the other company.

Niccolo de Masi

Pleasure to be here. Thanks so much.

Unidentified Analyst

Thank you.

Niccolo de Masi

Thanks so much.

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