Mobile gaming industry is a
hit-or-miss business and past has shown that a few consecutive misses can push
a company into a downward spiral and Glu Mobile (GLUU) is a prime example.
Inability to develop chart-topping games took its toll on Glu, but the company
maneuvered a sensational turnaround in the last few months. The stock has
appreciated over 28% since the company released its terrific quarterly report.
In Q3 FY2013, Glu delivered the strongest financial quarter in the company’s
history and managed to beat the analysts estimate on both revenue and earnings.
Let’s take a quick look at the numbers.
• All-time high Q4 non-GAAP revenues of $42.8 million, up
62% year-over-year, and significantly ahead of guidance.
• All-time high Q4 GAAP revenues of $34.8 million.
• Record Adjusted EBITDA for the fourth quarter of $6.0
million also significantly exceeded guidance
• 2014 non-GAAP revenue guidance revised upwards.
• Both Q1 2014 and full year 2014 Adjusted EBITDA
profitability expected.
Glu has grown considerably
in the last few weeks and is currently trading at $5.13. However, even after
the recent uptick, Glu is still a great long-term buy candidate. Let’s take a
look at catalysts which will drive Glu Mobile higher in the foreseeable future.
Apple’s A Growth Driver
Game developers usually
prefer Apple (AAPL) over any other operating system primarily because it
contributes for the most part of their sales. In Q3 FY2013, Apple’s app store
accounted for nearly 64% of Glu Mobile’s revenue. So anything which boosts
Apple’s sales will likely be beneficial for Glu as well. And for this very
reason, Apple’s tie-up with China Mobile is a boon for Glu Mobile.
Towards the end of 2013,
Apple declared that it had entered into a multi-year agreement to offer the
iPhone on China Mobile’s 4G and 3G networks. This deal gives Apple exposure to
over 700 million China Mobile customers and analysts are projecting that Apple
could perhaps sell an extra 20 million iPhones in China in this year. So, given
that app store accounted for 64% of Glu’s revenue, this tie-up will certainly
enhance Glu’s sales.
In addition, mobile gaming
market in China is on fire. According to Alibaba, mobile gaming in China jumped
over 247% year-over-year to $1.9 billion. To make the most of this trend, Glu
is planning to launch over 30 games in China in 2014. All in all, Glu is well
prepared to reap the benefits of Apple-China Mobile deal and this may be the
primary reason why the company increased its revenue guidance.
Acquisition Target for Big
Companies
On an average, Glu has
released 14 games annually since 2008. Bearing in mind the fact that the
company only has a workforce of approximately 550 workers, this number is quite
impressive. In addition, it looks like Glu has found the perfect formula to pump
out chart-topping games on a consistent basis. The company’s sturdy in-house
production prowess and a relatively small market cap of $381 million make it an
acquisition target for big name companies. And as everyone knows, more often
than not, investors benefit largely from an acquisition even if the company
doesn’t. So, judging from the aforementioned factors, Glu Mobile may be an
acquisition target.
Keeping It Fresh
The flavor of the mobile
gaming market changes rapidly as people tend to get bored. Since it is
difficult to develop chart-topping games on a monthly basis, waning popularity
of blockbuster games has a negative impact on a company’s margins. Glu Mobile
has realized this threat and the company will be making regular content updates
to two of its most profitable games called Deer Hunter 2 and Eternity Warrior
3. This plan will prevent the games from going out of fashion and these
blockbuster franchises will continue to add to Glu’s revenue. In addition, Glu
will also be launching next installment of Contract Killer and Frontline
Commando franchises. These two games are my personal favorites and the company
has claimed that the new installments have the potential to be the best
performers in the respective series up till now.
Final Words
The mobile gaming market is
growing at a very rapid pace and analysts are expecting it to be worth nearly
$23 billion by 2017. Glu has turned around its business just at the right time
and is well set to benefit from this growth. Besides, the company has a sturdy
product pipeline which will enable it to make the most of Apple-China Mobile
partnership. So, even after the recent surge, you should not pass up doing due
diligence on Glu Mobile. The company has significant upside potential.
About MissionIR
MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.
Sign up for “The Mission Report” at www.MissionIR.com
MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.
Sign up for “The Mission Report” at www.MissionIR.com
Please see disclaimer on the MissionIR website http://www.missionir.com/disclaimer.html
