The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

GLU Mobile Stock Analysis: Summary

Kim Kardashian’s game has lost its appeal and formerly strong revenue sales.

It’s high time that Glu Mobile expands its portfolio to include online gambling in the U.S.

Amaya managed to persuade New Jersey official to allow PokerStars and Full Tilt to operate legal real money online poker again in the U.S.

There is more money to be made in real-money online gambling than selling virtual goods on freemium mobile games.

Glu Mobile’s (GLU) suffered further beatings since my August 16 article about this struggling U.S. mobile game publisher. I was hoping that the decent monthly net sales of Racing Rivals would appease the negativity over GLUU. I Know First had a wonderful forecast for GLUU back in middle of August. But as you can see below, the sell-side team continued to punish GLUU.

(Source: Google Finance)

I think it is high time for Glu Mobile to expand its U.S. business to include real-money internet gambling. Canadian firm Amaya (AYA) was able to persuade New Jersey gambling regulators to allow PokerStars and Full Tilt to operate real money online poker rooms again in that American state.

An American firm like Glu Mobile should also try its best to operate an online web/mobile real-money gambling game inside New Jersey’s jurisdiction. Glu already launched a real-money slots game in the U.K. back in 2013. It might be wise now to bring Samurai Vs. Zombies Slots to American shores, specifically in states like New Jersey where the politicians allow real-money online gambling.

Glu needs the potential revenue stream from real-money online gambling because its existing portfolio of freeium web/mobile games are not doing so well in America. You can see from the chart below that Glu’s top-earning game in the U.S only generates less than $78K in daily sales.

(Source: ThinkGaming)

Why Many Investors Are Not Optimistic About Glu’s Future

The continuing pessimism over Glu’s future might be due to the obvious lack of a new hit game. Kim Kardashian: Hollywood, a $200 million/year game in 2014, is now only generating average daily sales of $77,900 from iPhone gamers in the all-important U.S. market.

(Source: ThinkGaming)

Kim Kardashian’s game weak in-app purchase performance is really problematic because Glu Mobile also has to pay royalty/licensing fees to Ms. Kardashian. Investors are unlikely to change their negative outlook of Glu if the Kardashian game’s estimated global Android/iOS net sales last September was only $3.4 million.

(Source: SensorTower)

After Kim Kardashian’s licensing/royalty share, Glu probably gets less than $2.5 million in monthly net sales from this game. Unless Glu Mobile comes up with another hit game, hedge fund managers will continue to avoid its stock. As per my premium account at TipRanks, fund managers have a negative outlook for GLUU since Q1 2015.

(Source: TipRanks)

As an avid games industry observer, I’m also very disappointed that Glu is now paying action star Jason Statham to do another clone of its old Sniper-theme first person shooter games. Glu’s latest mobile game, Sniper X is a rehash of its old hit Contract Killer game. Only problem now is that Glu will likely have to share revenue form Sniper X with Mr. Statham.

My Recommendation

I Know First has loud short-term and long-term buy signals for GLUU right now. However, I would not recommend this falling knife stock as a Buy at the moment. Glu will only be worthy of adding to my portfolio if the management will work on building a real-money online game for the U.S. market like Amaya is doing right now.

I also dislike Glu’s new penchant for licensing the names of popular Hollywood stars for its new games (based on its old games). I think it is better for Glu to copycat the very popular mobile game, Zynga (ZNGA) Poker and make it a real-money version for New Jersey gamblers.

As of now, Zynga appears to be content in selling premium play money for addicted players of Zynga Poker, Hit It Rich!, and Wizards of Oz Slots. Re-installed CEO Pincus has also not made any recent announcement that he will revive Zynga’s old plan of bringing real-money online gambling in America. I strongly urge Glu’s management to follow the action taken of Amaya and also try to persuade New Jersey and Las Vegas gambling commissioners to allow it to operate real-money mobile/web games inside those U.S. states.

U.S. authorities banned the real-money gambling services of PokerStars and Full Tilt in April 16, 2011. However, Amaya was skillful enough to persuade the politicians to allow those gambling sites back in America. Glu’s management should try to consult Amaya’s leadership on how they were able to do this feat.

I firmly believe that Glu’s future growth prospect is better if it tries to compete with PokerStars and Full Tilt in America.