What happened
After taking a breather in July, shares of mobile-game maker Glu Mobile (GLUU) resumed their rapid ascent in August. The latest jump followed an encouraging second-quarter earnings report that showed the company inching closer to turning a profit. Revenue jumped 31.2% year over year to $90.2 million, while the game maker's net loss narrowed from $23.6 million a year ago to $4.4 million in the last quarter.
The stronger-than-expected results sent the shares soaring 44.5% in August, according to data provided by S&P Global Market Intelligence.
Mobile games are the fastest growing category across the industry -- good news for Glu Mobile. Image source: Getty Images.
So what
The quarter was driven by strong growth in the company's big three titles, Design Home, Tap Sports Baseball, and Covet Fashion. Design Home and Tap Sports Baseball delivered huge growth in bookings (a non-GAAP measure of revenue) of 70% and 48%, respectively, over the year-ago quarter, while Covet Fashion grew bookings 7% sequentially over the first quarter. These titles made up 76% of net bookings, compared with 60% a year ago. Management expects these titles to continue trending higher as a percentage of total revenue for the foreseeable future.
What's more, management has been shifting more resources to developing original games, as opposed to licensing content from third parties, as this will provide more control over building, optimizing, and monetizing games over time. That's code for: We expect to make a lot more money.
Nonetheless, licensing games is still very much a part of Glu's growth strategy, as long as management believes a third-party title can deliver solid revenue.
On that front, things are looking up. Glu Mobile is partnered with major entertainment providers Walt Disney and WWE to make new mobile games expected to launch in the next year. It was perhaps this quote from CFO Eric Ludwig during the quarterly conference call that built investor confidence about the company's long-term potential:
"It is this stacking effect of year-over-year growth from these current and new growth titles that we believe will help us generate meaningful bookings growth and adjusted EBITDA margin expansion."
Now what
Mobile games are the fastest growing category of video game sales across the industry, pacing around a 26% annual growth rate. Mobile is expected to make up 51% of the $138 billion video game industry in 2018 for the first time ever, according to video-game research company Newzoo. With that huge tailwind, coupled with management's focus on building a profitable and growing game portfolio, Glu Mobile might just be getting started.
