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Glu Mobile Can Continue Growing

March 22, 2014 | About:

Mobile gaming is a hit-or-miss business and the past has shown that a few consecutive misses can push a company into a downward spiral. Glu Mobile (NASDAQ:GLUU) is a prime example of this. The inability to develop chart-topping games took its toll on Glu, but the company has maneuvered a sensational turnaround in the last few months. However, even after the recent uptick, Glu is still a great long-term buy candidate. Let’s take a look at catalysts which will drive Glu Mobile higher in the foreseeable future.

Apple’s a growth driver

Game developers usually prefer Apple (NASDAQ:AAPL) over any other operating system, primarily because it contributes for the most part of their sales. In the third quarter, Apple’s app store accounted for nearly 64% of Glu Mobile’s revenue. So anything which boosts Apple’s sales will likely be beneficial for Glu as well. And for this very reason, Apple’s tie-up with China Mobile is a boon for Glu Mobile.

Toward the end of 2013, Apple declared that it had entered into a multi-year agreement to offer the iPhone on China Mobile’s 4G and 3G networks. This deal gives Apple exposure to over 700 million China Mobile customers and analysts are projecting that Apple could perhaps sell an extra 20 million iPhones in China in this year. So, given that the app store accounted for 64% of Glu’s revenue, this tie-up will certainly enhance Glu’s sales.

In addition, the mobile gaming market in China is on fire. According to Alibaba, mobile gaming in China jumped over 247% year-over-year to $1.9 billion. To make the most of this trend, Glu is planning to launch over 30 games in China in 2014. All in all, Glu is well prepared to reap the benefits of Apple-China Mobile deal and this may be the primary reason why the company increased its revenue guidance.

Acquisition target for big companies

On an average, Glu has released 14 games annually since 2008. In addition, it looks like Glu has found the perfect formula to pump out chart-topping games on a consistent basis. The company’s sturdy in-house production prowess and a relatively small market cap of $381 million make it an acquisition target for big name companies. And as everyone knows, more often than not, investors benefit largely from an acquisition even if the company doesn’t. So, judging from the aforementioned factors, Glu Mobile may be an acquisition target.

Keeping it fresh

The flavor of the mobile gaming market changes rapidly as people tend to get bored. Since it is difficult to develop chart-topping games on a monthly basis, waning popularity of blockbuster games has a negative impact on a company’s margins. Glu Mobile has realized this threat and the company will be making regular content updates to two of its most profitable games called Deer Hunter 2 and Eternity Warrior 3.

This plan will prevent the games from going out of fashion and these blockbuster franchises will continue to add to Glu’s revenue. In addition, Glu will also be launching next installment of Contract Killer and Frontline Commando franchises. These two games are my personal favorites and the company has claimed that the new installments have the potential to be the best performers in the respective series up till now.

Final words

The mobile gaming market is growing at a very rapid pace and analysts are expecting it to be worth nearly $23 billion by 2017. Glu has turned around its business just at the right time and is well set to benefit from this growth. Besides, the company has a sturdy product pipeline which will enable it to make the most of Apple-China Mobile partnership. So, even after the recent surge, you should not pass up doing due diligence on Glu Mobile. The company has significant upside potential.

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