If there's one common theme that stood out to me from Google's (GOOG +1.98%)(GOOGL +1.69%) 2014 I/O Conference last week, it was Android gaming.
To be sure, Google first unveiled what it's calling the Android Extension Pack (AEP). The AEP helps developers bring modern games to mobile devices, complete with PC-esque features like tessellation and compute shaders. What's more, Google made it clear gaming would serve at the heart of its efforts to capture your living room with Android TV. We were also treated to the first leaked pics of Google's new game controller, which promises to give Android gaming a more console-like feel.
And that makes perfect sense considering we've already established Google Play is serving up stunning growth for the tech giant. And even though Play allows consumers to buy everything from mobile apps and music, to magazines, video, and books, data analytics firm AppAnnie recently revealed revenue from gaming apps alone represented nearly 90% of Google Play's total first-quarter sales.
But buying Google stock isn't the way investors can play Android's gaming aspirations. So where else can you look?
On powering high-quality Android games
First, consider NVIDIA Corporation (NVDA +0.07%), a graphics chip specialist for which gaming has long stood a central theme. As NVIDIA pointed out in its official company blog last week, "You couldn't get very far at Google I/O's dazzling kickoff [...] without bumping into our new Tegra K1 mobile processor."
Remember, NVIDIA first showed off the 32-bit version of its Tegra K1 mobile superchip in January. But last week, Google not only revealed NVIDIA Tegra-powered devkits for both Android TV and Android Auto, but also reminded us NVIDIA's Tegra K1 makes possible the incredible 3-D tracking and mapping features in its Project Tango tablet devkit. What's more, Google showed off the following demonstration of Android L's gaming capabilities with AEP running on a 64-bit Tegra K1 reference device:
In the end -- and considering the less-than-stellar adoption of NVIDIA's previous Tegra chips to date -- shareholders should be encouraged today that Google is so closely integrating NVIDIA's next-gen chips into its plans.
On the games themselves
Of course, Android gaming wouldn't be much of a platform without the actual games. In fact, the growth of Google Play games allowed Google to pay out more than four times as much money to developers in 2013 compared to 2012. That growth shows no signs of letting up, with more than 100 million new Google Play user accounts opened over the last six month alone.
And this is where companies like mobile game specialist Glu Mobile (GLUU +0.00%) come into play. Glu Mobile, for its part, is still a small-cap stock with a tiny $400 million market cap, and is currently riding a wave of momentum after it announced two of its games -- Deer Hunter 2014 and Eternity Warriors 2 -- are already available for Android TV. This is particularly exciting for investors as it gives Glu Mobile a way to expand its scope beyond just mobile devices and into millions of living rooms around the world.
But one word of caution: The economics behind the "freemium" game industry aren't exactly attractive, so it's no surprise Glu Mobile isn't profitable on a trailing 12-month basis. And though it does expect to achieve adjusted net income between $1.4 million and $3.2 million when all is said and done in 2014, keep in mind that's excluding more than $11 million in anticipated costs related to stock-based compensation, amortization of intangible assets, and earnout charges from its previous acquisition of Blammo games. That also excludes costs related to its recently completed acquisition of Dash series game maker PlayFirst.
But investors don't seem to mind, because Glu Mobile is effectively using these acquisitions to shuffle for position in its market, which data analytics firm AppAnnie recently reported was responsible for 98% of Google Play Games' revenue as of last month. Over the long run, if a small-cap like Glu Mobile can grab any meaningful share of that revenue and ultimately translate it to sustainable long-term profits, the stock could handsomely reward investors from here.
