Glu Foresees Slower Revenue Growth on Uncertainty Around Apple Offer Wall Policy

Glu Mobile, one of the very largest iOS and Android gaming companies, said it narrowed its quarterly net loss from a year earlier to $3.2 million from $3.8 million. Smartphone revenues nearly doubled to $5.9 million from the previous quarter and were almost triple what they were a year earlier. The company’s shares jumped 10.2 percent in after hours trading to $4.21.

The company also said it foresees much slower growth in smartphone revenues next quarter in the wake of Apple’s crackdown on incentivized installs and offer walls. Last month, Apple began rejecting applications containing offer walls, which give gamers rewards or virtual currency if they download apps from other developers. Rejection notices from Apple cited concern that this kind of advertising manipulated chart rankings in the iOS app store.

Because of uncertainty around what Apple’s final policy will be, Glu is predicting that smartphone revenue growth will slow dramatically. Smartphone revenue will rise only between 23 and 39 percent in the second quarter to $7.25 million and $8.25 million, down from the near 100 percent quarter-over-quarter growth rate seen in today’s earnings release. The company said earnings for the second quarter may be between $15.0 million and $16.5 million. That’s down from this quarter’s revenue of $17.2 million for the first quarter of 2011. (Glu doesn’t give guidance numbers based on generally accepted accounting principles.)

Glu said these guidance figures reflect a very conservative outlook and account for $2.8 million in offer wall revenue next quarter — half of which has already been earned to date. Glu earned $2.2 million in revenue from offer walls in the first quarter.

“The situation is still unfolding,” said chief executive Niccolo de Masi. “There is not perfect clarity on where a line is or isn’t in regards to offer-based monetization mechanisms.” He said that the company is currently in talks with Apple and that it does have several titles in the review pipeline, although their offer monetization schemes are much more restrained.

He said the company is looking at alternative forms of advertising that may not have any kind of quid pro quo, where users get rewards for downloading other apps. He added, “The one thing Glu is very confident on is that the chances of a new ad unit stepping into the fold will be very high.”

Glu’s smartphone apps to date haven’t been very reliant on advertising however. Most of the remainder of the company’s smartphone earnings outside of the $2.2 million in offer wall revenue was through in-app purchases, according to the company.

As the company is still in the midst of a turnaround away from building titles for feature phones, Glu produced some promising numbers on smartphones. Total smartphone revenues (according to generally accepted accounted principles) grew by 94 percent quarter over quarter to $5.9 million and now make up just over one-third of the company’s total revenues. The company said it did about 20 million installs on the Android and iOS platforms with 70.2 million to date. It also raised its average transaction size for in-app purchases to $2.31 because of higher price points for virtual currency.

Titles this quarter included the casual sim game Bug Village, a favorably reviewed first-person shooter Contract Killer and mafia game Big Time Gangsta among others. Next quarter the company is planning seven titles including Star Blitz, Eternity Warriors, Circus City, Space City and Africa. In the next month, Glu will also be taking many of its recently launched iOS titles to Android.

The company has also been improving monetization on the Android platform, where it was among the very first developers to use in-app billing when Google launched the payments ability to the public. Android still lags far behind iOS in terms of monetization however. Revenue on the platform is one-eighth to one-tenth of what the company sees on iOS.