Glu’s Q4 Revenues Fall As Game-Maker Copes With Declining Feature Phone Sales

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Credit: Glu Mobile

San Mateo, Calif.-based Glu Mobile (NSDQ: GLUU) said the company is continuing to reinvent itself as its traditional feature phone business continues to decline faster than anticipated, and game sales on smartphone platforms don’t increase fast enough.

In the fourth quarter, Glu reported revenues of $19.1 million, falling from the year-ago period when it reported $21.6 million in sales. Of those sales, Niccolo de Masi, Glu’s newly appointed CEO, said only a sliver is coming from smartphone platforms, including iPhone, BlackBerry, Android and Windows Mobile. He said smartphone sales totaled about $1.7 million in Q4, increasing 350 percent from the year-ago period. The results are weak when compared to competitors, such as Paris-based Gameloft (EPA: GFT), which recorded $9.7 million in Q4 from iPhone games. Likewise, Electronic Arts’ mobile business is thriving with overall mobile sales up 14 percent in its fiscal third quarter to $57 million compared to a year ago.

de Masi: “Our fourth quarter results highlight Glu’s progress and challenges as the industry transitions to smartphones. We have already begun reallocating resources with a target of doubling our smartphone studio capacity this year….We will be scaling back unprofitable activities as we sharpen our strategic focus and seek to ensure there are no further cash concerns for our business.” During the company’s conference call, de Masi elaborated by saying it will explore developing new titles that fit between the genres of Farmville and World of Warcraft. The idea will be to build a customer base across all of its titles using a social network-like community and then to incorporate micro-transactions and other premium business models. Some of these projects are already underway, but it may take six to nine months for them to get to market.

The company said its net loss totaled $6.7 million, or 23 cents a share, narrowing only slightly from the year ago period when it lost $6.9 million, or $1.26 a share. The Q4 net loss included $5.5 million of non-cash royalty impairments and $444,000 in restructuring charges. The non-cash royalty payments mostly had to do with royalty payments the studio made in Europe two years ago, which are now not expected to meet expectations. Excluding the royalty impairment, non-GAAP operating income for the quarter would have been $1.4 million.

Still, one of the biggest goals of the company is to achieve positive cash flows, and indeed, it generated $195,000 in cash in Q4, marking its third consecutive quarter. That streak is expected to be broken in the first quarter when it has to make additional cash payments to shareholders from its MIG acquisition.

Outlook:: GAAP revenue is expected to fall between $15 million and $15.5 million, and its GAAP net loss is expected to be between $5.4 million and $5.8 million, equaling between 18 to 19 cents a share.

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