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GLUU -- It's Time To Deliver

|Includes: Glu Mobile Inc. (GLUU)

With Deer Hunter 2014 being an instant success and management's strategy to introduce more 3rd-party titles and improve monetization of its games, is Glu Mobile poised to make a dramatic turnaround that will last into the future?

History doesn't bode well, but it is future that sells

Glu Mobile has been incurring net losses since 2003, the first year that the company's financials became available in the 10-k. EPS had been well in the red until 2009 when net loss began stabilizing below $1.00 mark as the company repositioned itself to capture the rising trend in smartphones while ditching the old featured phone model. With earnings in the negatives, it is the case that the value of the stock is entirely based on the expectation that the company will come out of the red zone and start spitting out profits in the future. The question is, can they do it?

Looking at the financials, we can see that the company has a large operating expense that eats up gross profit. R&D alone accounts for 50% of total revenue in 2012. One obvious way for the company to break away from the net loss spell is to boost revenue by way of producing more successful titles. To date, however, the company has had little success with such endeavor as is evident in the stagnating user count and per-user revenue data. Between Q1'12 - Q2'13, DAU and ARPDAU have remained more or less at the same level with some fluctuations in between - the same trend observed in Zynga.

With the tremendous popularity of DH 2014, we will most likely see a temporary spike in the user count figure and perhaps the revenue per user. Nonetheless, there is no real indication that the game maker will ever surprise its shareholders with multiple winners in the app store.

But don't lose hope in the company just yet. Management has identified another route to prop up revenue. In the Q2'13 Investor Presentation slides, Glu claims it will roll out an increasing number of 3rd party titles which should be less risky than developing games from scratch. These outside titles will bring in additional revenue that the company needs without piling up too much operating expense, although gross margin will take a hit. If executed properly, this strategy may be the solution to the company's chronic net loss and help restore investors' confidence in the company. At the same time, it can overwhelm the company with upfront license fees if executed poorly.


There is potential for Glu Mobile to make its EPS turn around and show shareholders that their wait has been worthwhile. With a sound plan in place, the question lies in management's ability to deliver what it is promising. Let's hope that Kevin M. was wrong about management.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLUU over the next 72 hours.