What: Shares of Glu Mobile (NASDAQ:GLUU) fell as much as 17.8% early Friday, and traded down 12.8% as of 2:00 p.m. after the free-to-play mobile game specialist announced better-than-expected third-quarter results, but followed with disappointing guidance.

So what: Adjusted quarterly revenue fell 23% year over year to $64.4 million, and translated to a 55.5% decline in in adjusted net income to $7.7 million, or $0.06 per diluted share. Adjusted earnings before interest, taxes, depreciation and amortization came in at $8.5 million, compared to $15.4 million in the year-ago period. Analysts, on average, were only anticipating a breakeven performance on adjusted revenue of $63.3 million.

"We were satisfied with our financial results in the third quarter," added Glu Mobile CEO Niccolo de Masi, "including our ability to exceed revenue and EBITDA expectations. During the quarter, our results were driven by the ongoing strength of our catalog as well as the continued outperformance of our Cooking Dash game."

That said, de Masi elaborated that the large majority of titles Glu Mobile released in 2015 have under-performed expectations, "as solid monetization rates were offset by significantly lower-than-expected install volumes." 

Now what: Going forward, Glu Mobile hopes to change that in part under the leadership of new CTO and Studio president Greg Brandeau, who formerly served as CTO of Walt Disney Animation Studios and senior VP of technology for Pixar. In addition, Glu is excited by its game-centric partnerships with celebrities who collectively boast over 1 billion followers on social networks, including Kim Kardashian, Britney Spears, and Jason Statham.

In the meantime, however, Glu Mobile now expects fourth-quarter adjusted revenue between $50 million and $52 million, an adjusted EBTIDA loss in the range of $2 million to $3 million, and an adjusted net loss between $2.9 million and $3.9 million, equating to a per-share loss of between $0.02 and $0.03. Analysts, on average, were modeling significantly higher fourth-quarter adjusted revenue of $94.2 million, and adjusted earnings of $0.13 per share.

During the subsequent conference call, de Masi blamed this reduction on a combination of lower launch revenue expectations and a challenging market for installs. And while de Masi also insisted Glu Mobile's long-term (2020) growth targets provided at its Analyst Day earlier this year are still achievable, he admitted "We are exceptionally disappointed with this outcome," further noting the company is exploring "cost rationalization or restructuring options."

In the end, I've never been shy about voicing my distaste for the economics of the free-to-play games space, and believe many companies primarily focused on the segment would be better off as part of a more diversified business whose core revolves around more lucrative full-featured games. Of course, such an outcome is hardly guaranteed for Glu Mobile as it continues to struggle to achieve sustained profitability, so I think investors would be wise to avoid Glu Mobile stock even after today's decline.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. 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.