Glu Mobile Set To Owe Kim Kardashian $85 Million?

Jul. 16, 2014 2:37 PM ETGlu Mobile Inc. (GLUU)79 Comments
Mark Gomes profile picture
Mark Gomes
9.04K Followers

Summary

  • Wednesday morning, shares of Glu Mobile fell as much as 5% on a seemingly bearish report that the company will owe Kim Kardashian royalties in excess of $85 million.
  • We have no reason to doubt their anchor fact that Kardashian is entitled to 45% of net profits from the game. However, there were material flaws in TMZ's analytical assumptions.
  • PTT Research has released a video correcting TMZ's errors, and provides analysis of the actual profits expected from its blockbuster hit; states that its $10 target could "easily prove conservative".

Wednesday morning, shares of Glu Mobile (NASDAQ:NASDAQ:GLUU) fell as much as 5% on a seemingly bearish report from TMZ. The pop-culture website disclosed that Kardashian is slated to earn over $85 million in 2014 from the hit game, "Kim Kardashian: Hollywood". GLUU would be the source of that payout, with TMZ citing sources familiar with the deal.

TMZ also stated that the game is "set to gross a reported $200 million in revenue this year alone". Considering the marketing expenses typically incurred by GLUU, along with the fees it must pay to game distributors like Apple (NASDAQ:AAPL), investors are understandably concerned that the operating margins on this game will be significantly lower than expected.

However, TMZ readily admitted that they are "no mathematicians" before calculating the impact of their information. Indeed, TMZ is known as one of the more trustworthy sources of pop-culture information, so we have no reason to doubt their anchor fact that Kardashian is entitled to "45% of net profits" from the game. However, there were many flaws in TMZ's utilization of that fact in their analysis.

For starters, TMZ applied the 45% royalty figure to the game's $200 million revenue estimate, belying their own information that the 45% will be applied to net profits. A video has been made available on PTT Research's public blog site, detailing TMZ's assumptions. It also provides an in-depth analysis of the actual profits GLUU can be expected to garner from this hit title. Running through multiple scenarios, the video calculates that cash flow from this one game alone could exceed 50 cents per share in 2014.

Net-net, we believe that TMZ's information is a net positive for GLUU investors. If the site has indeed spoken with sources familiar with the situation, we can assign greater confidence to the possibility that "Kim Kardashian: Hollywood" will result in

This article was written by

Mark Gomes profile picture
9.04K Followers
***NOTE: This account is no longer active due to a violation of Seeking Alpha's Terms of Use *** Mark Gomes is an Information Technology expert with over 20 years of experience. During his career, Gomes led the investment research efforts at numerous IT consulting organizations, including International Data Corporation (1994-1998), and AMR Research (1998-2004), which was later acquired Gartner Group. In 2004, Mr. Gomes founded Pipeline Data, LLC where he provided investment consulting to many of America's most well-respected mutual fund and hedge fund managers. In 2008, Mr. Gomes semi-retired and began donating his research to Seeking Alpha. He quickly built a reputation for accurately identifying inflection points and M&A candidates. Outside of the investment world, Gomes is a Masters Track & Field World Champion and multi-time world record holder. In 2012, he published "Faster Than Forty", which detailed his diet, lifestyle, and training techniques.

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