Glu Mobile Has ‘Measured Approach’ to iPhone 3G Games, CEO Says

Glu only offered Space Monkey last month for iPhones and iPod Touch via Apple’s new App Store. Rivals Gameloft and Electronic Arts had more aggressive iPhone game slates (CED July 11 p8). But “it will take some time for the iPhone marketplace to sort itself out into winners and losers and for successful pricing strategies and rational economics to emerge,” Ballard said. Glu is “using this time to learn and make educated investments in our future titles for the platform,” he said. Initial signs are encouraging for Space Monkey, he added.

Glu also is at work on games for the update of Nokia’s N-Gage platform, which Ballard said is “growing much faster than any other next-generation mobile platform.” The barrier for entry on new platforms is “low” now, but only a few mobile game companies will be able to launch titles across multiple platforms the way Glu can, he said. Developing games for the new devices will take slightly longer, but the rewards will far offset that, he said.

Glu was able to overcome weakness in the U.S. to report record revenue in Q2 ended June 30, but earnings were hurt by acquisition and restructuring charges. Its loss widened to $6.6 million, 23 cents per share, from $898,000, 3 cents, a year ago. Glu shares were down 25.64 percent at $2.79 in early afternoon trading.

Glu had a “difficult” quarter on multiple fronts, Ballard told analysts. Besides a “general slowdown in consumer spending” in the U.S., the company had a “relatively light release schedule” and its new releases “underperformed,” he said.

The company’s U.S. business “showed the first real signs of weakness” in Q2, Ballard said. Game sales through certain carriers are sometimes down, but typically that’s offset by sales via other carriers in the market, he said. However, Glu saw slow Q2 growth from all U.S. carriers, including its top customer there, Verizon Wireless, he said. Game sales through Verizon mobile phones “fell short of our expectations,” he said. A factor could have been the carrier’s imposition of a data surcharge for game downloads by customers with no data plan, Ballard said. It wasn’t clear how much that directly impacted Glu game sales, but “it has had a measurable impact” on Verizon’s business, he guessed.

Weak U.S. sales were offset by strong performance in the rest of the Americas, “driven by Latin America,” as well as certain European markets and China, where Glu became the market leader after buying MIG Information Technology last year, Ballard said. Glu continued to expand its Latin American business, opening offices in Chile and Mexico to go with its Latin American headquarters in San Paolo, Brazil, he said. Q2 sales were strong in France, where it’s now No. 2 in share, Benelux and the Nordic region, but the company saw U.K. and German sales drop. Glu is closely watching those markets now, he said. The company has an 11.8 percent market share in North America, where it is No. 2, Ballard said, saying it has a similar share in various European countries and in Latin America.

Overall Q2 Glu revenue jumped 45 percent from a year ago, to $23.7 million, it said. Minus charges for acquisitions and restructuring, the company had a non-GAAP $278,000 profit, 1 cent per share. The GAAP loss included a $71,000 charge from acquired in-process research and development for acquisition of mobile game company Superscape, restructuring charges of about $86,000, amortization of $3.2 million in intangible assets and stock- based compensation charges of $2 million, among other charges.

Glu’s top 10 titles represented about 32 percent of Q2 revenue, down from about 43 percent in Q1 2008, the company said. Revenue per top-10 title averaged $752,000, down 14 percent from Q2 2007. New titles in Q2 this year included the licensed Mystery Case Files: Agent X, Speed Racer and Wedding Dash, as well as original titles by Glu including Super Slam Ping Pong and Get Cookin’. Glu didn’t break down sales by title, but weak performance by the movie Speed Racer may have figured in underperformance in Q2 by the game based on it.

Ballard is upbeat about the rest of the year, he said. “New partnerships with Activision, Sony Pictures Television International, Sega and FremantleMedia Enterprises” will help “contribute to our exciting second half lineup,” he said. For Q3 ending Sept. 30, the company expects to report sales of $24 million to $24.7 million and a loss of $5.9 million to 6.3 million, 20 to 21 cents per share. For the fiscal year ending Dec. 31, it expects to report revenue of $95.3 million to $97 million and a loss of $21.8 million to $23 million, 74 to 78 cents per share.

Uncertainties include the economy’s impact on the mobile business, which Glu is watching “closely worldwide,” although so far most impact has been in the U.S., Ballard said. Also unclear is how the merger of Activision and Vivendi Games will affect Glu, he said. Activision Blizzard is “evaluating options” for its “non-strategic” Vivendi Games Mobile and Sierra Online divisions, it said last week (CED July 30 p5). “A lot needs to be revealed” by Activision Blizzard about its plans “the next couple of months,” Ballard said. Glu was “a little bit concerned,” but a spinoff of the Vivendi mobile business might not impact Glu’s relationship with Activision, he said.