Glu Mobile (GLUU) is Well-Positioned.... Just Be Patient

Glu Mobile Inc. (NASDAQ: GLUU) is one of the few mobile phone game designers that's making waves in the business. See, while these game designers are a dime a dozen, most of them never even make a dozen dimes' worth of profit. Oh, to be perfectly clear, GLUU isn't and has never been profitable. It's got a viable business model though, and with the right marketing tweaks may well get over that hump and become a worthy investment.

First things first though. Glu Mobile is self-described as a "designer and marketer of games for mobile phones. It'ss developed and published a portfolio of casual and traditional games designed to appeal to a broad base of wireless subscribers well as to users of smartphones who purchase the company's games through direct-to-consumer digital storefronts. Its games include Call of Duty, Deer Hunter, Guitar Hero 5, Family Feud, The Price Is Right, Transformers, Who Wants to Be a Millionaire?, and World Series of Poker just to name a few. GLUU acquired two game developers, Griptonite Games and Blammo Games, and August of 2011."

The business model seems to be working too. Glu Mobile Inc. turned a top line of $67 million in 2007 into a top line of $90 million in 2008. Unfortunately, it also turned a $3 million loss into a $34 million operating loss in the same timeframe. Worse, since then, the top line has fallen back to $64 million (2010), and the operating loss rolled in at $10 million last year - not a step in the right direction.

So what makes GLUU so compelling now? While the numbers are getting smaller, in the looking-ahead picture, they've gotten progressively bigger over the past two quarters.... sequentially, and year-over-year. And, though the company laid out some cash for the acquisition of Blammo and Griptonite last quarter, those deals coupled with a new (even if mild) growth trend may well start to push Glu Mobile over that nagging profit hump. After all, the losses have actually been quite marginal, and the trailing P/S ratio of 2.45 is quite normal.

While the company's business plan is apparently on target, the reason there's a light at the end of the tunnel has just as much to do with the proliferation of the device Glu Mobile Inc. is targeting..... smartphones. And considering the similarity, we can reasonable add tablet computers as potential devices that may ultimately be purchasing these games. While neither smartphones nor portable tablets are 'new', their proliferation is just now starting to swell exponentially.

How fast will smartphone usage grow from here? Forecasters say the number will double between 2011 and 2015, with 1 billion of the devices shipping in 2015. As for tablets, the sales figure is expected grow from 70 million units shipped in 2011 to 300 million shipped by 2015. That's a huge increase on both fronts, and GLUU is ready and waiting for it.

Bottom line: Glu Mobile Inc. may look like a "take it or leave it" speculation right now, but considering the quality of the product line and strong execution of the plan so far, this small cap is actually very well positioned to emerge as one of the industry's winners.