Glu Mobile Inc. (GLUU) is Not Over yet

Once a blue-eyed boy of the mobile gaming industry and investors alike, Glu Mobile Inc. (NASDAQ:GLUU) has seen a sharp downturn in its fortunes over the past six months. The stock has imploded drastically since hitting its 52-week high in July last year and now trades within 20% of its 52-week low. Moreover, the stock has become synonymous with volatility as investors have witnessed wild swings in stock price for some reason or the other.

When Glu reported its fourth-quarter earnings earlier this month, it became clear that it has lost some of its momentum. Despite delivering Street-beating numbers over the past three quarters, Glu has failed to seize the moment due to the gloomy guidance it offered on each occasion. For example, in the previous quarter, Glu’s revenue jump of just 4% was the lowest in the entire year.

Glu Mobile Inc. (NASDAQ:GLUU)

A comeback in the offing

Glu’s smartphone revenue growth in the fourth quarter almost came to a halt. The company decided to delay half of its titles that were scheduled for release in the quarter on account of a strategic review by its President of Studios, Matt Ricchetti. Glu seems to be following a well-planned strategy of improving monetization from its intellectual properties.

Reading the trends

It is focusing on extending the life cycle of its hit franchises through sequels, apart from developing real-time action and strategy games. In addition, CEO Niccolo de Masi’s philosophy of “fighting not the current war but the next” seems to be the correct one since gaming on smartphones and tablets has picked up considerably while console sales have declined.

Moreover, Glu possesses the required expertise and technology to bring multiplayer gaming, and it had acquired GameSpy from IGN Entertainment last year for this purpose. Mobile devices are widely tipped to hurt traditional gaming consoles and their sales have been on the decline over the past few months.

It remains to be seen how next generation consoles fare later this year and the transition might not be in favor of traditional consoles. Game publishing behemoth Activision Blizzard, Inc. (NASDAQ:ATVI) guided lower than the Street for the full year just recently, since management isn’t quite sure of how next-gen gaming consoles would sell apart from being wary of “unproven business models.” Moreover, even Activision is looking to improve its mobile portfolio so that it doesn’t miss the mobile game.

Smartphone samurai

Glu is the first name that comes to my mind when I think of mobile games, since I have had its titles on my different phones over the last seven years. Thus, when the smartphone category was still in its infancy, Glu was in the mobile gaming arena. And it has done well in this arena. The company’s games have featured regularly among the top grossing apps on the iOS and Play stores.

The previous quarter might have been a dampener as far as smartphone revenue growth is concerned, but that was due to launch delays. But Glu is going make that right through the course of the year. It plans to release 15 titles, and five of them would be in the current quarter. The release of sequels to famous games, such as Gun Bros 2 and Samurai vs. Zombies Defense 2 apart from a host of other titles, should help Glu reclaim its smartphone mojo this year.

In addition, Glu’s long-term plans of reaching a wider audience look commendable. The company has created a separate publishing division, through which it would partner with third-party developers across the globe for developing titles for different platforms, countries or languages. The publishing division will kick off 2013 with four releases, and plans to move aggressively in 2014 by hitting a run rate of one title per month.

At the right places

Another impressive thing about Glu is that its games have presence across various operating systems. Hence, growing sales of tablet and smartphones, coupled with the company’s presence across each ecosystem should be an advantage in the long run. For instance, the company was expected to rake in two-thirds of its revenue from Apple Inc. (NASDAQ:AAPL)’s iOS store last year.

When Apple released the iPhone 4S, Glu witnessed a solid jump in revenue, but it failed to do the same this time due to launch delays. The failure to capitalize on the 47.8 million iPhones sold by Apple during the holiday quarter should have hurt Glu hard, but it should be kept in mind that the delay was a one-time event. Given the company’s solid release pipeline of 15 titles this year, I believe it won’t miss out on such opportunities again. Also, it expects its revenue from Google Inc (NASDAQ:GOOG)’s Play store to improve as well.

Gambling ahead

Apart from these moves, Glu has also been making forays into real-money online gambling. After entering into a partnership with U.K.-based mobile gambling company Probability PLC last year, it picked up a stake in casino startup Bee Cave Games earlier this year.

Online gambling is gradually finding acceptance across the globe, with Nevada and Delaware being the states in the U.S. that permit internet gambling. New Jersey is in line to become the third state, but it might take some time before a definitive bill is passed. Thus, with small investments and strategic partnerships, Glu is trying to position itself in order to benefit from online gambling.

The takeaway

Glu Mobile has taken quite some hits over the past few months, but it’s worth a gamble at its current levels. The company is looking to improve and prefers long-term achievements over short-term gains. Moreover, it seems to have the backing of its management, as evidenced by insider buys in the past three months. Also, Glu Mobile’s non-GAAP gross margin improvement to 90% in the previous quarter from 87% in the prior-year period tells us that the company is efficiently going about its business.

Hence, it’s not at all surprising that Glu shares have risen 14% since they crashed post earnings as investors scooped up low-priced shares that could deliver long-term gains. Hence, if you’re patient enough and intend to profit from the evolution of mobile gaming in the long run, Glu Mobile might just be the perfect candidate.

The article This Mobile Gaming Play is Not Over yet originally appeared on Fool.com and is written by Harsh Chauhan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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