Glu Mobile’s Net Loss Narrows as Smartphone Revenues Rise by 58% in Challenging Second Quarter

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By Kim-Mai Cutler Comment

Glu Mobile, which is nearing the end of a major shift from feature phone to smartphone revenue, narrowed its second quarter net loss by 46 percent to $1.75 million from a year earlier.

It however anticipates bigger losses during this quarter, with guidance for between a $7.4 and $8.2 million net loss. That’s more than four times the net loss it saw in the same quarter a year earlier. Shares in after-hours trading are down by 1.5% to $4.53.

For the first time in Glu’s history, smartphone revenue made up more than 50 percent of the company’s overall revenue in the second quarter. The company, which went public in 2007 amid the first wave of mobile gaming companies like JAMDAT, has had a bumpy transition to a new world dominated by Apple’s iPhone and Android devices. But with a big bet on freemium and social gaming-style monetization, Glu has been making some progress toward replacing its feature phone business with smartphone gaming revenue.

The company earned $9.42 million in smartphone revenue according to generally accepted accounting principles, beating its earlier guidance of $8.25 to $8.75 million.

It boosted overall daily active users or DAU to 1.64 million from 963,000 and monthly active users or MAU to 16.5 million from 11.9 million. The company also added 31.8 million installs for a cumulative total of 101.9 million to date.

This was an especially challenging quarter. In April, Glu faced a big setback when it lost one of its strongest user acquisition channels. Apple began cracking down on incentivized installs, where developers pay to have their apps downloaded in offer walls of other games.

In today’s earnings call, Glu acknowledged that its replacement strategies were not as effective as previously thought. The company said alternatives to incentivized installs were replacing 15 to 25 percent of revenue dollar for dollar, down from the 50 to 75 percent figure it had talked about in May at the company’s investors day.

Video ads, where Glu will give a user virtual currency if they watch videos like trailers for other games, are the most promising alternative. But inventory for these types of ads is scarce.

Another reason this quarter has been difficult is that many larger gaming companies like Zynga have been boosting their spend on campaigns for their mobile IP, making competition at the top of the grossing charts more intense.

Glu also announced today that it acquired two studios, Blammo Games and Griptonite Games, for stock and earnouts worth more than $50 million at today’s closing price of $4.60.