Looking Beyond Glu Mobile’s Earnings

With the turnaround complete, Glu Mobile investors can expect greater returns from the company.

Feb 21, 2014 at 4:00PM

Glu Mobile's (NASDAQ:GLUU) period of struggle is probably over. The mobile gaming company was in dire straits last year, but it has executed a remarkable turnaround in the last few months. The company looked set to scale greater heights at the end of 2013, and it received a huge shot in the arm when Apple (NASDAQ:AAPL) penned a deal with China Mobile. In addition, Glu is looking to bring a whole new experience to gamers with Google Glass. 

Earlier this month, when Glu reported its fourth-quarter results, it became crystal clear that the company is making all the right moves. Its revenue was up 62% from last year, while non-GAAP net income was $5.4 million, against a loss of $3.2 million in the year-ago period. Glu beat estimates across the board, and given management's strategies, it wouldn't be surprising if it continues to outperform going forward. Let's see why.

Playing smart and good
Mobile gaming is a fast-growing market. Gartner predicts that worldwide mobile gaming will become a $22 billion market by the end of next year, up from just $13 billion in 2013. As such, the potential here is pretty big, which is why there are a huge number of gaming companies and independent developers out there looking to make big bucks. Glu is competing in a pretty tough market, but it has successfully managed to make a mark due to its addictive games.

Having a solid portfolio of games has been a cornerstone of Glu Mobile's success. The likes of Contract Killer, Frontline Commando, Eternity Warriors, and Deer Hunter have been money spinners for the company. Going forward, Glu Mobile is aiming to double the lifetime revenue of the new games released under these franchises, and it has already lined up quite a few releases to achieve this target. 

Glu is aggressively focusing on the action and shooter genres this year. Shooter games are not as popular on smartphones and tablets as compared to their console counterparts, but Glu believes that this will change in the future. So, it is looking to make the most of the expected increase in the popularity of shooter games on mobile devices going forward through its robust games and an efficient gaming platform.

Deer Hunter 2014 and Eternity Warriors 3 are expected to earn double of what their predecessors made, helped by Glu's focus on making marked improvements in gameplay, social features, and the implementation of games as a service, or GaaS.  

GluOn, the company's GaaS platform, is being gradually integrated into more titles after its success with Eternity Warriors 3. GluOn provides a stable server platform, as well as with various interactive features to make gameplay more engaging. Glu's recently launched Motocross Meltdown is also being supported by GluOn, increasing the company's chances of seeing better performance from the title. 

More opportunities ahead
Glu is also poised to capture new markets as Google and Apple introduce new products and enter new markets. For example, with around three-fifths of revenue coming from Apple's iOS store, Glu should ideally benefit from the smartphone giant's deal with China Mobile.

Apple should see its addressable market increase, as analysts expect the company to sell around 24 million more iPhones this year through China Mobile. That means there will be 24 million more potential users of Apple's iOS store in China this year, and since Glu's games perform very well on this platform, it should see a spike in users.

In addition, Glu is exploring new markets. It was the first to announce a game for Google Glass, known as Spellista, last year. Although this is just a word-puzzle game, it shows how committed Glu is toward newer opportunities. The company has brought its existing expertise, such as peer-to-peer messaging and voice tutorials, to enhance the gaming experience.  

The bottom line
Gaming is growing fast, and Glu is one of the leading mobile game developers attacking the market with a wide range of games and innovations. Its games have found good traction on different platforms, including Android and iOS. This is why Glu is confident it will see solid growth from its new games. This should translate into further share-price gains going forward.

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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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