More Delays at Glu Mobile Sabotage a Great Deer Hunt

Glu Mobile (NASDAQ: GLUU  ) shares were absolutely clobbered after the third-quarter earnings report that easily beat estimates. On top of the beat, the mobile game developer increased guidance for the fourth quarter that would typically send a stock soaring. Why was the market so unforgiving this time?

The issue with Glu Mobile was twofold. The first issue was that investors had hyped up the release to the extent of expecting unreasonable guidance for the fourth quarter. The second issue and probably most concerning was the unexpected delay in the release of several titles forecasted to contribute highly to fourth-quarter numbers.

The mobile and social video game developers haven't been able to get out of their own ways. Zynga (NASDAQ: ZNGA  ) reported solid results, yet the stock slumped as well. The ironic part is that a console focused game developer like Take-Two Interactive (NASDAQ: TTWO  ) has seen its stock soar after the successful release of the latest version of a franchise game. Will Glu Mobile and Zynga eventually turn successful franchises into very profitable mobile games?

More delays
Though Glu Mobile produced a major positive in Deer Hunter 2014, the company surprised investors with huge negatives from the long delays in all of the major releases previously expected during 2013. So again, Glu Mobile followed up a piece of good news with disappointing news. To a certain extent, Zynga did the same thing by soundly beating estimates, but the company didn't provide investors with a road map for game improvements in 2014.

The major impact to Glu Mobile is that just as Deer Hunter 2014 is delivering record revenue and downloads for a company developed game, the game isn't getting any revenue contribution from other game releases. It has now been two months since that mega hit release and no games have followed. The next expected launch isn't until Dec. with the much-anticipated release of an update to the successful franchise of Eternity Warriors.

The company claims the delays are partially to allow for the integration of technologies and techniques learned from Deer Hunter 2014. It also allows the company further time to implement the Games as a Service, or GaaS, concept. The service provides for competitions, leadership boards and other capabilities to lure gamers to continue playing a game. A major reason why investors were so eager for these additional games with updated GaaS features during the fourth quarter.

Updated release timeline
During the second quarter earnings presentation, the company projected that Eternity Warriors 3, Frontline Commando 2, and Motocross Meltdown would be released during the fourth quarter. As mentioned above, only Eternity Warriors 3 will make that schedule while slipping all the way to December. The one positive detail was the intention to move up Robocop to Jan. from Feb. to coincide with the theatrical release.

Possibly this shift caused some of the other games to be pushed back. Defenders & Dragons is expected to launch during Jan. while Motocross Meltdown got pushed back to Feb. The most disappointing news was probably that Frontline Commando 2 wouldn't be released until the end of the first quarter in the March time frame.

The importance of these games can easily be summed up by the older generations still producing solid revenue streams. Frontline Commando: D-Day that was released back during the first quarter of this year generated the most revenue during the third quarter at $3.3 million. The number surpassed even Deer Hunter 2014 and beat out the $2.0 million generated by Eternity Warriors 2. Even the original Frontline Commando released nearly two years ago generated $1.2 million.

Major franchise hit
The importance of the success of Deer Hunter 2014 for Glu Mobile and the megahit Grand Theft Auto V for Take-Two Interactive is the ability to take a franchise game and update it versus the risk of creating a whole new concept. This is the fifth game in the Grand Auto Theft series, yet it delivered record sales of $800 million during the first day and over $1 billion for the initial three days. Take-Two Interactive has had the best performing stock during this period due solely to the success of this rehashed game.

Zynga could be the biggest beneficiary of the ability to recycle existing franchises on mobile and social. The company has several megafranchises in Farmville, Words with Friends, and Zynga Poker. Lately though, those franchises have stagnated, but the success of Glu Mobile and Take-Two Interactive suggests a new look at Zynga could again turn those franchises into mega hits.

Bottom line
Investors interested in the sector should be keen to follow the progress of Deer Hunter 2014 that continues to rank in the top games on the iPhone at AppAnnie.com. If Glu Mobile has finally identified a method of successfully monetizing game franchises on mobile, the predictability of future game monetization should be greatly enhanced. In that case, the stock could be worth multiples of the current $240 million market value. If only, the company could finally release new games on time.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 26, 2013, at 10:22 PM, profitalert wrote:

    Please be accurate. On 8/26, TTWO hit a high of $19.26. On 9/16, the day before the release, it closed at $17.35. Today it trades at $16.01.

    Here's your quote and what do you mean by soar? "The ironic part is that a console focused game developer like Take-Two Interactive (NASDAQ: TTWO ) has seen its stock soar after the successful release of the latest version of a franchise game."

  • Report this Comment On November 27, 2013, at 2:11 AM, Demokrat wrote:

    As you put emphasis on Frontline Commando generating more revenues than Deer Hunter in the 3rd quarter do you take the time to consider performing an accurate examination of the facts? You base your statement on the assumption that Deer Hunter was released 2 months ago but the numbers reported in their 3rd quarter only included 10 day's worth of revenues for Deer Hunter while Frontline Commando had been well under way for a full 90 day's worth of revenues reported in that same 3rd quarter earnings release. It is common knowledge that Deer Hunter 2014 is crushing every other game Glu Mobile has released to the extent of a company record breaking and consistent $270k per day. So it is no surprise that Glu Mobile has a 4th quarter guidance of approximately $30M in revenues stemming in great part from Deer Hunter. And that

    guidance is considered by analysts as conservative which is historically typical of Glu.

    So, in all fairness, it would be right to point out Frontline Commando's 90 days' worth of revenues

    ($3.3M = $36,6K/day) at 3rd quarter's end versus Deer Hunter's 10 days for that same 3rd quarter end ($270k x 10 days =$2.7M). Assuredly the revenues generated per day are down but it is still for now, a greater success story than Frontline Commando.

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