in G5

Glu Mobile posts strong growth in Q3 2011

Mobile gaming company Glu Mobile just posted its Q3 2011 results including smartphone revenue growth of more than 300% year over year. Their active user base grew by 34% in Q3 compared with Q2 2011. Glu Mobile’s freemium revenue (micro-transactions, in-game advertising and offers) grew to USD 8.1m compared to USD 0.6m during the same period one year ago. However, the company is still loss making and Operating Loss according to US GAAP amounted to USD 7.3m in Q3  2011.

Says CEO Niccolo de Masi: “We are pleased with our strong third quarter results, especially in our ability to maintain momentum in smartphone revenue growth and simultaneously expand gross margins. Original IP accounted for more than half of total revenue for the first time in our history, which reflects the success of our product strategy. We believe that Glu is well positioned due to our strength on Android combined with the leverage from our audience of over 22 million monthly active users. In addition, we remain very excited about the recent Griptonite and Blammo acquisitions and the progress we have made toward integrating these studios into our operations. Looking forward, we expect our scale combined with demand for new and existing franchises to drive continued growth in 2012.”

Glu’s topline is growing nicely and the company is certainly benefitting from the ever growing smartphone and tablet markets. It’s recent releases such as Contract Killer Zombies are very successful in app stores around the world. What’s still somewhat frustrating, however, is that the company still does not manage to turn its sales into a profit. During Q3 2011, revenues were USD 16.9m. Cost of revenues and operating expenses combined where not less than USD 24.2m, which left Glu with a Loss from operations of USD 7.3m. Research and development costs alone where close to USD 11m.

I am optimistic that Glu Mobile will eventually be able to generate profits as sales volumes are likely to continue to increase. In the meantime, I still prefer G5 Entertainment, listed in Sweden which is also focused on mobile games for iOS and Android. Unlike Glu Mobile, G5 Entertainment is profitable and very much so indeed. With an EBIT margin of around 35%, G5 Entertainment is set to earn an EPS of SEK 1.90 and has recently published an initial guidance for 2012 of an EPS of SEK 3.20. The share is currently trading at SEK 21.4 which implies a PE-ratio of  11x on 2011 earnings and 6.7x on 2012 earnings. There have been speculations about a Glu Mobile being a takeover target for major gaming companies such as Electronic Arts, Zynga etc since everybody wants a piece of the mobile gaming pie these days. Be sure that G5 Entertainment’s development and low valuation doesn’t go unnoticed either.

I am long G5 Entertainment and you should be too!

Nordic Investor

Related Posts

What is your opinion? Let us know