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Glu Mobile Inc. (GLUU) Signs Important Deal With Potential Cash Infusion

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In order to be successful in the tech sector, it tends to help to have the financial flexibility in order to invest for the future. For anybody interested in investing in the mobile gaming sector, the main two options have been Glu Mobile Inc. (NASDAQ:GLUU) with a mobile only focus or Zynga Inc (NASDAQ:ZNGA) with a shift towards mobile from Facebook Inc (NASDAQ:FB). The major difference has always been that Glu Mobile Inc. (NASDAQ:GLUU) only has $20 million in cash while Zynga Inc (NASDAQ:ZNGA) had a net cash balance of over $1 billion. Of course vast differences exist between those two stocks especially when it comes to size, but each offers a similar valuation multiple and the ability to make investors lots of money if either can score a few big mobile winners.

Glu Mobile Inc. (NASDAQ:GLUU)

Glu Mobile Inc. (NASDAQ:GLUU) is a leading global developer and publisher of freemium games for smartphone and tablet devices focused on creating original IP games such Contract Killer, Deer Hunter, and Gun Bros.

Glu Mobile Inc. (NASDAQ:GLUU) has several new promising technologies including a real-money gaming portfolio and a platform to launch games-as-a-service (GaaS) to further monetize and improve retention traction of already popular games. The question remains whether the business is predictable enough to generate strong returns or whether small, private firms will always generate outlandish returns based on surprise hits such as Angry Birds and Miner Craft. More importantly, it announced a deal with MGM Interactive where that company will potentially invest much needed cash in Glu Mobile Inc. (NASDAQ:GLUU) via warrants.

MGM Interactive deal

First and for most, the MGM deal could provide a much needed cash infusion though that depends entirely on the warrants vesting and being exercisable. The details are as follows:

  • The companies entered into a warrant agreement initially exercisable to purchase up to 3,333,333 shares at an initial exercise price of $3.00 per share.
  • 333,333 shares vested and became exercisable on July 15, 2013.
  • 333,333 shares will vest and become exercisable on each date Glu commercially releases a new mobile game based on a MGM property.
  • The company is already working on a mobile ROBOCOP game.
  • 1,000,000 shares will vest and become exercisable on the date Glu commercially releases a new mobile game based on JAMES BOND.
  • In total, the fully exercised warrants would generate $10 million in proceeds.

Too bad the cash isn’t received up front, but the good news is that Glu Mobile Inc. (NASDAQ:GLUU) has access to develop mobile games based on the popular JAMES BOND franchise and less importantly ROBOCOP. It even sounds as if the ROBOCOP game may be released in the next few quarters considering it is already being developed.

Will disappointing results continue?

As mentioned in previous articles about both Glu Mobile and Zynga Inc (NASDAQ:ZNGA) has been the propensity of late to produce disappointing results. As small startups have been wildly successful with mega hits, the larger public firms have struggled to create these massive hits.

Glu Mobile never seems to live up to the high expectations it creates. For Q2, analysts now expect the company to see a nearly 30% decline in revenues to only $17.2 million. The number is down from over $24 million last year and most investors had to have expected a surge to at least $30 million this year.

At least that is better than the 39% drop in revenue expected by Zynga. Until these numbers start increasing, the stocks will likely trade around the bottom with the one caveat being the encouraging developments.

Encouraging developments

Glu recently delivered on a promise of becoming a publisher of third party games. The release last week of Black Gate: Inferno became the first game to be released by Glu’s publishing organization.

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