The last month has been a roller coaster for Glu Mobile (GLUU) investors. At the end of May, Glu shares took a solid beating after the company announced a secondary offering, which came as a surprise since it is a debt-free company and has ample cash. However, Glu made such a move to bolster its business, as it aims to make the most of the $60 billion revenue opportunity presented by the mobile gaming industry.
Management said that it will use the $30 million proceeds of the offering toward making acquisitions and investing in "companies, technologies, products or assets that complement Glu's business." Since mobile gaming is a highly competitive industry, the secondary offering looks like a wise move, even though it left a bad taste for investors at that time. But, Glu bounced back and soared almost 10% after announcing its support for Google's (GOOG -2.21%) (GOOGL -2.06%) Android TV platform.
A smart move
This is a smart move by Glu, as Google's gaming platform is growing rapidly. In fact, according to Fool contributor Steve Symington, more than 100 million new Google Play Games accounts have been opened in the last six months. Symington states:
Google Play's number of app downloads in the first quarter rose "just" 50% year over year, Google has done an excellent job monetizing that base; Google Play app revenue increased 140% over the same period. Within that, revenue originating from Google Play's games accounted for nearly 90% of total Q1 sales. And by May of this year, the vast majority -- or around 98% -- of total Google Play revenue originated from in-app purchases within freemium-style apps.
The last part of Symington's statement signifies Glu's catalyst, as it is a publisher of freemium games. Since Google Play Games will form a key part of the Android TV, a new addressable market will be opened for Glu. According to App Annie, in 2013, spending on mobile gaming doubled from the previous year, and there's still room for growth.
Android TV can expand Glu's market
With Android TV, Google will be able to expand its mobile platform into the living room, integrating live TV through an over-the-air antenna or cable box, as reported by The Verge. Users will be able to access every app on the Play Store on the TV, along with games that can be controlled with an Android smartphone or a dedicated controller.
So, apart from providing the TV experience, Android TV will also appeal to the fast-growing population of casual gamers. Glu has made its popular titles, Deer Hunter 2014 and Eternity Warriors 2, available on the Android TV with immediate effect for development purposes, and there should be more additions going forward as Android TV goes mainstream.
Apple is another catalyst
Undoubtedly, this opportunity looks exciting for Glu, as it will be able to diversify its revenue stream. Currently, the company generates around 60% of its revenue from Apple's (AAPL 0.01%) iOS platform, and the addition of Android TV has the potential to strengthen its revenue opportunities.
Plus, Apple continues driving Glu's revenue higher at a robust pace. Apple looks set to launch two iPhones this year -- one a 4.7-inch version and the other a 5.5-inch version. The last time Apple made a significant addition to its product line, by launching the iPad mini, Glu's revenue spiked as adoption of tablets accelerated.
The same can happen when Apple releases its bigger iPhones. According to supply chain checks by Morgan Stanley analyst Katy Huberty, orders for the iPhone 6 are 20% higher than they were for the iPhone 5s. If Apple manages to sell 20% more iPhone 6 units, more users will have access to its app store. Since Glu derives the majority of its revenue from the iOS store, the company might see a spike in game downloads.
The bottom line
Glu has gone from strength to strength in the past few quarters on the back of various moves to bolster its position in mobile gaming. The latest foray with Android TV is another feather in its cap, as this will allow the company to diversify. Hence, despite being up 16% so far this year, Glu Mobile is still a solid buy.
