The gaming industry is changing fast. Casual gaming is the new core of the video-game market, with Web-based games and mobile apps tag-teaming the old console and PC hegemony.
Mobile-game developer Glu Mobile
Share prices jumped as much as 8.4% on the report as Glu beat analyst estimates on both the top and bottom lines. Non-GAAP revenue, which excludes changes in deferred revenue, climbed 25.6% year over year to $21.6 million, and the $0.01 net loss per share was half as large as the year-ago period's.
Zynga and Glu are the biggest names in freemium smartphone gaming, and Glu's management took pains to point out that Glu tends to collect a lot more money per gamer than Zynga does. That's good for Glu's margins, which in turn is great news for investors looking for positive bottom-line profits to show up one of these days.
Glu's success proves the power of the so-called freemium business model. You get the game for free, and then you make tiny cash payments to gain advantages in the game. It's the old Gillette model of giving away the handle and selling the blades, except that everything is software so the overhead costs are vanishingly small.
CFO Eric Ludwig promises that Glu will break even in terms of EBITDA profits and operating cash flows by the fourth quarter, and that the healthy profits should be sustainable going forward. A handful of new titles launched during the first quarter should help Glu reach that goal.
In particular, Glu recently bought the rights to the Deer Hunter franchise from longtime owner Atari and scored immediately with a top-selling Deer Hunter title for both the Apple App Store and the Android Play store. Moreover, the Samurai vs. Zombies tower defense game has done well on both the Android and iPhone platforms.
Some investors don't buy Glu's success, and more than 20% of its float is currently sold short. Then again, upstarts shaking up old business models often gain a few haters along the way. The one stock whose brilliant growth prospects make Fool founder David Gardner all teary-eyed has 46% of its float shorted today, for example. Could Glu be the next rule-breaking multibagger? Add the ticker to your Foolish Watchlist and you'll be the first to know.