Glu Mobile Restructures Acquisition Payments; Delays Some Until 2010


Glu Mobile (NSDQ: GLUU) has restructured the payments it must pay for the acquisition of MIG, a Chinese game company, by converting the entire $25 million to cash payments, rather than a mix of cash and stock, and deferring $11 million of the payments to 2010. Although the company doesn’t have a ton of cash, it was clearly in a bind since its equity isn’t worth much either. At 39 cents a share, the company’s entire value totals $11.5 million — hardly making it a valuable currency to pay off a debt. At the end of the year, Glu expected to have $17 million in cash, not counting an $8 million credit facility. However, it needed to pay $25 million in cash and stock to the MIG shareholders with the first installment due in the first half of 2009. To help, the company is working to reduce expenses by 19 percent, which includes cutting the CEO’s pay.

In the deal announced today, Glu said it also received a new credit facility that extends the company



Throughout 2008 Glu continually lowered revenue expectations and consistently failed to achieve even those lowered goals. So now they’re forecasting even lower revenues in 2009 – likely to be $80M or less (90% of 2008’s $89M in revenue). Based on their track record, does anyone expect them to achieve even this modest level of revenues? Worse, they’re forecasting $57M of operating expenses when they’ve already spent more than $60M through the first nine months of 2008. Again, does anyone expect they’ll actually limit their 2009 expenses to less than 75% of 2008 levels? Finally their failed strategy of licensing mediocre and short-lived movie titles has contributed to a 32% overall royalty rate. This means that even at $80M in 2009 revenues, they’re likely to incur $26M in royalties, resulting in a gross profit of around $54M. How can they forecast profitability in 2009 with $54M of gross profit and $57M of operating expenses? Looks more like a $3M loss, not a profit, and that’s assuming that they’ll actually achieve their forecasts, which they’ve always failed to do in the past.

With the imminent delisting of their stock on January 19 (according to Glu’s 10-Q from Nov. 14), it’s pretty clear that Glu’s death spiral is nearing its inevitable end. This won’t matter to Glu’s CEO, who will just move on to another company that’s willing to ignore his track record, first with 3DFX and now with Glu. But it’s truly unfortunate for Glu’s employees, shareholders, and institutional investors. Glu was once a robust company with the potential to be the best in the world in the mobile game industry. Sadly, Glu’s over-reliance on licenses, marketing, and misfit acquisitions, combined with a lack of product orientation and little or no operational focus on profitability and cash flow, sealed its doom. RIP, Glu.

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