Is the Kardashian Game Success a Blessing or Curse for Glu Mobile?

Glu Mobile's (NASDAQ: GLUU  ) stock has soared nearly 50% in the last three weeks behind the success of its Kim Kardashian: Hollywood game. In the past we've seen the excitement and fear that single games can bring for a company with the likes of King Digital (NYSE: KING  ) and Zynga Inc (NASDAQ: ZNGA  ) . Albeit, with Glu Mobile's titles on the rise, is it time to get long now?

A warm welcome
In the last couple weeks Needham, Cowen, Benchmark, and Bloomberg are just a few of the firms to give the small cap Glu Mobile their blessing following a bullish reception to Kim Kardashian: Hollywood. The game launched last month and already is ranked number 2 on App Annie's list of top free and grossing U.S. iPhone applications.

In the same categories the game is also holding a top 25 ranking in the Google Play store, and users on both operating systems have given the title a favorable review. As a result, some analysts now believe the game could generate over $200 million in annual revenue, which isn't bad for a company that's only created $125 million during the last 12 months.

The need for diversification
With that said, investors are naturally skeptical of investing long-term following the success of single-games. Most notably, Zynga's success with the FarmVille franchise landed it an $11 billion market capitalization just shortly following its IPO in 2012. However, FarmVille's usage has since fallen fast, and Zynga has been unable to replicate its success with other titles. As a result, shares of Zynga have fallen drastically, now worth just $3 billion.

As with FarmVille and other popular titles like Candy Crush from King, the goal is diversification for these game developers. Some times a company is unsuccessful like Zynga, or successful like King Digital right now.

Last year, Candy Crush accounted for nearly 80% of the $2 billion in revenue that King Digital created. The sudden success of Candy Crush sent the company's revenue soaring 11-fold versus the year prior. And while King looked almost destined for a repeat of the Zynga madness, it found success with other games.

Specifically, Candy Crush now accounts for only 67% of its total gross bookings, meaning the company has become more diversified, and as a result its stock has soared 20% in the last month alone.

Is Kim Kardashian good or bad for Glu?
With all things considered, the success of King and the ultimate goal of diversification might actually weigh in Glu Mobile's favor. Unlike King and Zynga's sudden success with blockbuster games, Glu Mobile was already well-established with other titles. Furthermore, its market capitalization of only $550 million is a reflection of far lower expectations than its respective peers.

Not to mention, Glu Mobile saw its revenue soar 90% during its last quarter to $47 million behind the success of Deer Hunter 2014 and Eternity Warriors 3. Hence, the Kardashian game was an added bonus, not a title whose success is tied to the success of the company.

Albeit, Glu Mobile is expected to generate revenue of $161 million this year, growth of 42% that is very much tied to the success of its total portfolio. Therefore, even if Kim Kardashian: Hollywood does create revenue of $200 million, minus a 30% royalty, the company will likely have no more than 50% of total revenue tied to the one game, which will undoubtedly will be appreciated on Wall Street.

Foolish Thoughts
Given what we've seen with Zynga's inability to replicate FarmVille and the initial skepticism that surrounded King, having a P/E ratio of just 10.0, Glu Mobile's diversification is a blessing in disguise for shareholders. Overall, the Kardashian game's success further validates the uptrend in shares of Glu Mobile, and with sales expected to rise, and the initial opinions being bullish among gamers, Glu Mobile might very well have much higher days ahead long-term.

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