Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Reasons Why This Small Cap Stock Could Continue to Outperform

Mobile gaming is growing at a tremendous pace, and so is mobile gaming company Glu Mobile (NASDAQ: GLUU  ) . Having gained almost 70% this year, Glu Mobile is on a solid run, and it won't be stopping anytime soon. The company's games are gaining traction on Apple's (NASDAQ: AAPL  ) iOS platform, with the recently launched Kim Kardashian: Hollywood becoming the third-ranked free app on the app store.

Glu's results have been strong of late. The company delivered record year-over-year growth in revenue and net income in the first quarter, pushing the stock near 52-week highs. Its revenue for the quarter increased a whopping 90% year over year to $47 million. Glu also reported a fabulous improvement in its bottom line, with its net income clocking in at $5.4 million versus a loss of $2.3 million in the year-ago quarter. 

A strong pipeline to drive growth
Looking ahead, Glu has a number of games lined up that can continue driving its robust revenue and bottom line growth. The company attributes its first-quarter outperformance to Deer Hunter 2014 and Eternity Warriors 3. Glu has now prepared a robust content update pipeline to keep user interest in these games high.

In addition, Glu recently announced the acquisition of PlayFirst, which has created several hit games such as Diner Dash, Hotel Dash, etc. over the past few years. The popularity of its Dash series is evident from more than 750 million downloads across all platforms over the past 10 years. 

Glu management believes that PlayFirst is one of the largest casual gaming brands of all time, and that it will vault its casual gaming portfolio to new heights. According to Glu CEO Niccolo de Masi, "Glu continues to search for globally recognized IP that can be reinvigorated by leveraging our global studio and publishing organizations." The company has planned to launch a free-to-play Diner Dash mobile game in the fourth quarter of 2014, and going forward, it plans to grow the franchise globally. 

The mobile gaming company signed an agreement with MGM and EON to bring the James Bond franchise to mobile and tablet gamers worldwide. Glu will become the first company to bring the 007 game to mobiles and tablets. According to management, "As the franchise continues to set ever higher box office grossing records we're optimistic about our titles [sic] prospects of very significantly uplifting Glu's financial trajectory." 

Short-term pain, long-term gain
Glu saw a minor hiccup in the previous quarter as Frontline Commando 2 didn't perform up to expectations. Although the game's performance was in line with the previous releases of the franchise, Glu was expecting more. In order to boost prospects of its upcoming games, such as Contract Killer 3, it has decided to increase development time. Such a move might hurt its revenue in the near term, but the long-term impact should be positive.

Moreover, management anticipates that the average cost per install will rise at a faster rate in the future. At the same time, Glu believes that it will be able to grow the average lifetime value per install at a faster rate. The company is focusing on improving brand recognition, which it believes will reduces user acquisition cost, and will bolster Glu's presence across gaming platforms. As a result, Glu has been creating and nurturing franchises and intellectual properties such as Contract Killer, Eternity Warriors, etc. to drive long-term growth. 

The Apple factor
Another factor that could drive Glu Mobile's growth is the expected increase in Apple's addressable market this year. The mobile gaming company gets around 64% of its revenue from the Apple app store, and the launch of bigger-screen iPhones this year will allow it to tap a bigger market.

According to rumors, Apple is on track to launch two iPhones this year. One of them will sport a 4.7-inch screen, while the other will come with a 5.5-inch screen. A bigger screen will allow Apple to tap consumers who had stayed away from traditional iPhones due to its small screen. Hence, Apple will be able to take away market share from smartphone players such as Samsung and LG, which have a free run in the big-screen smartphone market. Ultimately, the number of iPhone users will increase, along with the app store's reach, and this will benefit Glu Mobile. ­

The bottom line
Glu Mobile has performed impressively this year. The company's strong gaming pipeline, the acquisition of PlayFirst, and Apple's upcoming iPhone will act as tailwinds going forward, and help Glu sustain its terrific momentum.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Read/Post Comments (0) | Recommend This Article (4)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3033330, ~/Articles/ArticleHandler.aspx, 8/30/2015 6:00:36 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Mukesh Baghel

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
AAPL $113.29 Up +0.37 +0.33%
Apple CAPS Rating: ****
GLUU $4.53 Up +0.12 +2.72%
Glu Mobile, Inc. CAPS Rating: ***