The continuing growth of app stores is making it more and more difficult for a game developer to get noticed. In the console world, the big name developers automatically got shelf space at the major retailers, locking out a lot small developers. The mobile world leveled the playing field by making it cheaper and easier to have a game released to the user base of Apple (NASDAQ:AAPL) and Google, yet the field is now so saturated that most games go unnoticed.
In steps the advantages of developing recognizable franchises similar to the paths of Glu Mobile (NASDAQ:GLUU) and Zynga (NASDAQ:ZNGA). In both cases, the game developers are expanding on existing franchises with refreshed games plus purchasing concepts developed by others possibly needing the distribution skills of these two firms. The key is to develop brand recognition that helps drive consistent game players while reducing the at-risk costs of developing brand new game concepts.
Massive app stores
The latest data indicates that the Apple app store has over 1 million apps for the iPhone and iPod and 500,000 for the iPad with a large amount of those listed under the games category. In Dec. alone, app sales surpassed $1 billion and exceeded $10 billion for this year. Even more importantly, these numbers only account for the largest app store and don't include Google Play and other various stores around the world.
It takes a lot to be noticed among the massive amount of games especially considering games out of nowhere such as Flappy Birds can obtain cult followings. The games lucky enough to attract a large following will make millions if not billions, but others will fade away without ever being noticed.
Strong release schedule
Glu Mobile has a solid release schedule starting in the third quarter and highlighted by hopeful mega hits in 2015. The lack of releases in the second quarter will hit revenue short-term, but the recent success of the Kim Kardashian games should shot third-quarter revenue substantially higher.
The big upcoming release is Dino Hunter: Deadly Shores that expands on the Deer Hunter platform and utilizes the engine for game play. A big key is whether the game attracts the same users or if it gets branded a duplicate. The game is targeted for launch in July and follows the releases of Kim Kardashian: Hollywood and Hercules that launched prior to the MGM movie release. As well, the company is making a move into social sports with a baseball title and the latest release of the Contract Killer franchise, Contract Killer 3.
The company targets two megahits for 2015 with the latest addition of the Deer Hunter franchise and a James Bond 007 game. Glu Mobile plans to spend more in order to advance the technology for these hits and hopefully expand the user base and more specifically the amount spent by game players.
With some success of developing other titles on the cheap and advancing the concept, Glu Mobile made the purchase of PlayFirst. The game developer provides another set of franchise games for only $12 million equity and $3.5 million in assumed debt. PlayFirst owns the set of Dash games that include Diner Dash. Collectively, the games have been downloaded over 750 million times across multiple platforms providing some hope that Glu Mobile can turn this game set into a solid, repeatable franchise. By the way, the company has only reached 712 million cumulative installs for its games providing s solid example of the upside potential.
The company expects to release the first game in 2014 followed by a couple of launches during 2015.
Interestingly, Zynga is striking out to develop franchises that have repeatable revenue streams in a similar manner to Glu Mobile, but on a much larger scale. It decided to go more for a company with current large hits by obtaining Clumsy Ninja and CSR Racing with the purchase of NaturalMotion.
Glu Mobile continues to make huge progress in not only expanding existing franchises, but also developing new concepts and purchasing interesting brands. Along with Zynga, the management teams have identified the best investment exists around creating reliable hits instead of going for a grand slam game. With over 1 million apps on the Apple app store alone, it makes sense to focus on identified brands and continue making better and better iterations of existing games. Both stocks offer attractive valuations with better growth potential than most investors realize.
Mark Holder and Stone Fox Capital clients own shares of Apple, Glu Mobile, and ZYNGA INC. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.