November 5th, 2008 by Arjan Olsder Posted in Companies & M&A | 8 Comments »
Not only Glu's financial results for Q3 came to light, the company also had their quarterly earnings call in which a lot of questions popped up. We took a closer look and also asked several people to submit their (anonymous) expectations on what will happen to the mobile gaming giant.
Revenues
Year-on-year, Glu's revenue grow 44% to $ 23.9 million. Last year, the company made about 18.3 million. Of the $ 23.9 million, $ 5.6 million came from the acquired SuperScape and MIG companies (which is a decline of $1.1 million from the second quarter of 2008). If we deduct those revenues, Glu actually shrunk to $ 16.7 million.
48% of the revenues came from newly introduced mobile games. Of those, 28% of the revenues originated from original IP, showing potential for non-branded mobile games in today's market. The main revenues within this category again came from SuperScape and MIG games.
49% of the revenues originated from North America. EMEA represented 29%, which leaves 22% for the rest of the world.
Costs
Glu's R&D department took up 37% ($ 8.8m) of the costs. 24.1% ($ 5.8m) went up in royalties and 17% ($ 4.1m) went into sales and marketing efforts. The rest of the costs went to other areas.
Another thing eating Glu's revenues are currency fluctuations. The good news for the company, the dollar is rising in value.
During the call, an analyst asked Creg Ballard about cutting back costs. Though Greg said that he already manages to eliminate 8% of the costs, there doesn't seem to be any real plan here.
Expectations
According to the CFO (Eric Ludwig), the company will end the year with $ 17 million in cash and other valuables. There will also be an $ 8 million credit facility available to the company.
The company expects to raise roughly $ 22 million in Q4. Operating expenses around $ 16 million and a GAAP net loss somewhere around $ 7 million.
Along 2009, the company has to settle a $ 25 million dept toward the former owners of MIG. The first installment is $19.8 million we will do during the first half of 2009, the exact timing will determined based upon the closing of the MIG financial report for the full year 2008. Of this $19.8 million, approximately $12.1 million is due in cash, $5.2 million is due in cash or stock at the company's discretion and $2.5 million is due in stock. The second instalment will be in Q4 2009.
The company hopes to gain a lot from the Android market. Glu has already released two mobile games on it, which received huge amounts of downloads. To bad that they are free. We will have to see how much Anroid consumers are willing to pay for games with so many titles available for free already.
Next to Android, other high end platforms will be one of the focus areas for Glu. Greg is mainly looking at the iPhone market which went better then Glu's expectations as well as N-Gage. According to Greg, N-Gage will be as big in Europe as the iPhone is in the US…
The company will also be looking at alternative ways to generate revenues. This could range from ad funded games to in-game item sales. Other platforms like web gaming are also on the evaluation table.
Company Risks
One single operator represents 21% of Glu's revenues. Needless to say, Glu would be in huge trouble if they would loose that deal.
With $17 million cash in-house and an $ 8 million credit facility, it will be a rough time to pay the debts toward MIG. What will happen if Glu can't cover these debts, returning MIG to it's former owners? Reversed Takeover? I'm no expert here…
With the current market value of Glu, the company would be an easy buy into the mobile games market for many publishers that didn't try or abandoned the desire to do so. Many of those possible publishers are already clients of Glu. Take for example Konami, which is already huge in the console market. Even better would be SEGA. SEGA tried to get into the mobile games market several times, but didn't succeed. With Glu they would acquire a huge network and portfolio.
Meanwhile…
Greg still has one of the biggest salaries in the business and the shares are expected to sink even below the $ 0.66 we reported in our last post (or $ 0.62 as we write right now). We have put Glu on our frontpage so you can check their status along the day. We will remove them when their value is rising or… let's not go there just yet!
For those that want to take a dive into the earnings call, check this link.
perhaps thats the best song for glu:
http://www.youtube.com/watch?v=TAtblBTkTHY&feature=related
but SM already signed by gameloft.
The glu money is not gone it just belong to others 😉
Loki… Is this the same Loki which regularly posted on wgamer.com forums a few years ago ? The kind and tone of this comment certainly reminds me about it 🙂
Glu management and VC’s are most likely safe, think they got their money at the float. It’s the institutions and private investors who would be getting burnt. Saying that, there is probably good money to be made to short this stock. It may go down to 20 cents.
At 18m USD, what does this say about the valuations of the other publishers since Glu was number 3 ? (Player X et al)
Wow, when I predicted a 20 cent price target for GLUU this morning I didn’t think it would reach it this fast. It just dropped 33% and is now only worth
i can hear something ticking… how long until the top brass jump ship do you think?
…..Another 12% slump. GAME OVER (flashing)
Glu is down to 30 cents, will this be another Telcogames? How long can Glu last will they not pay and pray?
Its almost worth a punt at this price ? Then again, maybe not. It looks like nobody else wants to catch this falling knife. 25 cents is almost down to the 20 cent target. A market cap of GBP 4.9m and still nobody is interested. I wonder if the remaining shareholders would sell if someone did a takeover offer on Nasdaq at 10 cents per share ?