Glu Mobile Has More Upside in Store

Glu Mobile (NASDAQ: GLUU  ) has started the new fiscal year strongly. The mobile gaming company posted fantastic first-quarter results based on strong execution and the popularity of its games such as Deer Hunter and Eternity Warriors.

With the growing mobile market and more people playing games on smartphones, there's a great opportunity for Glu to expand. Also, Apple's (NASDAQ: AAPL  ) App Store accounts for a majority of Glu's revenue, so the introduction of new mobile devices from Cupertino can also benefit the game maker. Let's look at its recent results and see why the company can be a good buy for the long run.

A solid performance
Glu Mobile's first-quarter top line grew 90% year over year to $47 million, beating the consensus estimate of $39.5 million by a wide margin. Its non-generally accepted accounting principles operating income also improved from a loss of $2.2 million in the prior-year period to a profit of $5.8 million in the first quarter.

Since Glu is a leading global developer and publisher of free-to-play games for smartphones and tablet devices, it should continue doing well in the future.

A solid pipeline
Glu Mobile games are among the most popular free games on the Android and iOS platforms. Glu will certainly try to keep its titles among the top-grossing games on these platforms. In an effort to meet this target, it has new and exciting games in the pipeline, including Contract Killer 3, Hercules, and Tap Sports: Baseball.

Glu Mobile is also trying to benefit from the action shooter genre, releasing RoboCop earlier this year to tap this category. RoboCop brought in revenue of $3.5 million. Glu is now looking to maintain this momentum in action shooter games. As reported by IGN, Glu will create a new free-to-play mobile game based on the James Bond film franchise. 

However, the company faces a challenge because Apple has made 17-plus age ratings a universal standard for any shooter app on the App Store worldwide. This change may adversely impact download volumes of some of Glu's biggest franchises, according to management. Hence, this is a point that Glu investors need to watch.

However, Apple can bring joy for Glu Mobile as well. According to rumors on the Internet, Apple will launch two iPhones this year, one with a 4.7-inch screen and another with a 5.5-inch screen. A bigger form factor should enable Apple to appease consumers who had stayed away from the company's phones due to the lack of a big screen. This could mean Apple cuts into the market share of leading smartphone players such as Samsung and LG. Greater reach for the Apple App Store means the potential for greater sales of Glu Mobile games.

Glu's acquisition of the Deer Hunter intellectual property from Atari in 2012 has played a key role in the company's growth. Encouraged by the performance of this acquisition, Glu announced last month that it is buying PlayFirst, which has popular intellectual properties such as Diner Dash, Cooking Dash, Wedding Dash, and Hotel Dash. These games have been downloaded over 750 million times in the last decade, spread across several platforms. Glu's growth could receive a big boost as a result of this buy.

The takeaway
Glu Mobile shares have gained more than 60% in the last year, but the company has room for more upside. Revenue in the current fiscal year is expected to increase a whopping 40%, and the company is also expected to turn in an annual profit on a non-GAAP basis. Even after a solid run, Glu Mobile is still a good investment.

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