Here's Why Glu Mobile Is Poised for Growth

Learn what Glu Mobile's recent acquisition of PlayFirst and Q1 2014 results reveal about its growth outlook and leadership among competitors.

May 5, 2014 at 5:00PM

Glu Mobile (NASDAQ:GLUU), the video game developer for mobile devices, is undergoing a period of significant growth, which started with the successful release of Deer Hunter 2014 in its fourth quarter of 2013. In the hit-or-miss mobile game industry, this company is performing quite well in the face of competitors like Zynga (NASDAQ:ZNGA) and King (NYSE:KING)

Now, after its 2014 first-quarter results, the company has announced that it will buy PlayFirst in a stock deal -- for an equivalent of around $12 million -- this month. PlayFirst is the owner of the famous Dash franchise, which includes the recent, popular hit, Diner Dash. The franchise has had over 75 million installs, and that's on iOS only. Plus, the company's titles have accumulated around 750 million installs over the last ten years.

Certainly, Glu Mobile aims for considerable growth in the next years. With hits like Deer Hunter 2014 and Eternity Warriors 3 at hand, the company can continue to excel in revenue and profit this year, while it prepares for its next launches and reaps benefits from PlayFirst.

Impressive financial growth
Glu Mobile's financials are steadily improving since its last quarter of 2013. Back then, the company saw a yearly 60% increase in revenue, and surpassed Street's expectations. Despite its success, there was a concern that the company was generating a significant part of its revenue from a single game, Deer Hunter 2014. Now, after its recent Q1 2014 results, the company shows its revenue well distributed through its portfolio, with top hits: Eternity Warriors 3, Deer Hunter 2014, and Robocop.

Through an extensive user acquisition campaign, the company has managed to deliver financial results that exceed analysts' expectations. The GAAP revenue for this year's first quarter was $44.6 million, up 81% from the same quarter last year. Deer Hunter 2014 generated $17.2 million of non-GAAP revenue, while Eternity Warriors 3 produced $10.2 million. Also, Glu Mobile showed $0.06 earnings per share, surpassing the estimate of $0.02. The company achieved total downloads of 105.6 million across its portfolio. This was caused by the successful launches of Robocop, Front Line Commando 2 and Motocross Meltdown, plus strong focus on promoting Deer Hunter 2013 and Eternity Warriors 3.

From now on
The company's executives have revealed their plans to continue its user acquisition campaign with Deer Hunter 2014 and Eternity Warriors in Q2 2014, as it prepares to launch new titles later this year. Its track record in regards to achieving growth in the past quarters shows that it is capable of replicating its current success. Moreover, with the acquisition of PlayFirst, Glu Mobile now expects to generate between $155 million and $161.5 million of total revenue in 2014, above its previous guidance of $142 million to $150 million. 

The company expects to increase its top-line through PlayFirst's post-closing revenue. As a developer of several hits, PlayFirst can provide valuable insight as to what kind of games are likely to be successful. In addition, Glu Mobile can use its marketing and user acquisition abilities in order to drive further success with the Dash franchise. The organization has already demonstrated its ability of monetizing through ads, given that, in its last quarter, its ad revenue grew 156% from the same quarter last year.

In regards to the next quarters, the company plans to enter the Japanese market with the game it is currently co-developing with COLOPL. Also, it aims to grow in 2015 with the release of a new James Bond game and Deer Hunter 2015, as executives bet on the name recognition and potential for monetization that these games have.

Leadership among competitors
A competitor in the mobile game market for Glu Mobile is King, which went public in March. Despite its massive success in much of 2013 due to its big hit, Candy Crush Saga, King's growth is considerably slowing down. As a result, there is a strong concern that the company is overly dependent in that video game. Investors also worry whether the company will be able to release another hit like Candy Crush. Taking these factors into consideration, Glu Mobile is doing far better than King, and has a more solid outlook on growth.

Glu Mobile also faces Zynga, the developer of popular Facebook video game, Farmville. The company is currently taking strong measures to increase its mobile presence, which is starting to improve its financial results significantly. In its first quarter of this year, its revenue was $168 million, beating analysts' expectations, and its bookings were of $161 million, up 10% from the previous quarter. Moreover, Zynga recently launched Farmville 2: Country Escape, which made it into Google Play top tier and Apple App Store "Editor's Choice." At the moment, the company generates a significant portion of revenue from Farmville 2, Zynga Poker, and Farmville. Zynga has an effective monetization strategy plus diverse revenue generating titles. These aspects make it a strong contender for Glu Mobile.

Final Foolish Takeaway
Glu Mobile shows that it is able to produce revenue generating games consistently. The company has a wide portfolio of titles that attract users and produce ad revenue. Moreover, its recent acquisition of PlayFirst can potentially improve its financial results, and provide access to valuable insights as to what kind of games become hits. Still, the company must take into account that its competitors have big hits in their portfolios, and may be close to their next one. So far, Glu Mobile has a positive track record of monetization, ad revenue, and user acquisition, which shows that it can maintain growth in the future.

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Alvaro Campos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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