Is a Turnaround in the Cards for This Mobile Gaming Company?

Just one year ago, Glu Mobile (NASDAQ: GLUU  ) looked like a good bet to benefit from the growth of mobile gaming. The company's games were doing well, it was making impressive acquisitions, and the pipeline looked strong. It had even entered into a revenue-sharing partnership with a U.K.-based mobile gambling company to explore new growth areas .

Cut to the present and Glu's 52% drop in the last year doesn't paint a rosy picture. Once a pioneer in mobile gaming, with games such as Crash 'N' Burn (a favorite of mine in the Symbian era), Glu has seemingly shot itself in the foot in recent times.

GLUU Revenue TTM Chart

GLUU Revenue TTM data by YCharts

Going off track

Surprisingly, the company decided that its games needed a "strategic review" in the holiday period last year -- a time when its revenue usually spikes on the back of new games -- and this proved to be a huge misstep . Revenue has been on a decline ever since and Glu's second-quarter results and guidance released last month weren't inspiring either .

Instead, the company went for an accounting tweak that would make its revenue look fatter but the bigger question is, can Glu finally make good games? From what management stated over their recent conference call, Glu is indeed getting ready to launch a few games.

Getting its act together?

Glu is looking to right the wrong it committed last time by targeting the September-December period to launch games, so that they can get off to a good start. But investors should take management's promises with a pinch of salt as it failed to deliver last year, even though what's being promised looks impressive.

Glu will be launching the next iteration of its Deer Hunter franchise, which was its most successful game in 2012, in October. In addition, Eternity Warriors 3, Frontline Commando 2, and Motocross Meltdown are slated for release by the end of the year. In addition, Glu is looking to improve the lifetime value of these games and is employing ways to increase monetization opportunities .

It is focusing on Games as a Service (GaaS) model with its GluOn platform to drive revenue in the long run. These latest strategies seem to be working and Glu expects top line growth to return in the fourth quarter of the fiscal year -- the holiday quarter .

Games such as Frontline Commando: D-Day and Eternity Warriors 2 are doing well, as paying users for the former grew 25% in the previous quarter while the latter saw revenue growth of 60% . These signs are indeed positive, but Glu has burnt investors over the past year. As such, it would be prudent to see its turnaround plans first materialize and then buy shares.

It won't be easy

Mobile gaming is a tough arena to compete in and the presence of bigger and more established players will make things difficult for Glu. For instance, game publisher Electronic Arts (NASDAQ: EA  ) is aggressively moving into mobile gaming. The company is of the opinion that game play on mobile in the future will be at par  with the present console generation.

Electronic Arts is looking to make the most out of mobile gaming and will be launching an impressive 15 mobile games in the next year -- redesigned for mobile as against just porting to smaller screens from PCs and consoles. Given the brand recognition of Electronic Arts and the popularity of its games, Glu will face stiff competition.

Then there's the threat of Chinese gaming companies, such as NetEase (NASDAQ: NTES  ) , bringing over popular online games to mobile. NetEase recently launched the mobile version of its popular game Fantasy Westward Journey II and it has a lot more in the pipeline . The advantage that NetEase enjoys in the lucrative Chinese gaming market is that it can use the popularity of its web games to bring users to mobile.

Moreover, NetEase is more than 50 times bigger than Glu, and as such, its marketing muscle is undoubtedly superior. Given the presence of these resourceful and more established peers, investors shouldn't be taking Glu's promises of a turnaround at face value.

The takeaway

It looks like Glu would finally be releasing some games and is also promising revenue growth in the fourth quarter. Moreover, the company seems to have put its adventure into gambling on the sidelines and is focusing on mobile, which is probably the right thing to do as that's where Glu specializes. Once Glu delivers what it is promising, then it might be worth another look.

To stay up to speed on the latest developments and news on Glu Mobile, add it to your watchlist by clicking here.

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