Market Insight

Tencent aims for Western mobile games expansion with Glu Mobile investment

May 01, 2015

Jack Kent Jack Kent Director, Media and Advertising

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Tencent has acquired a 14.6% stake in US mobile games publisher Glu Mobile for $126m.

Glu’s Q1 2015 revenues of $69.5m were 56% up on the same period in 2014. It reported 54.6m monthly active users, which was 15% down from 64m in Q1 2014.

Glu reported a positive 2014 – with record revenues of $223m (up 111% YoY) and reported its first ever annual net profit.

Glu’s hit titles include Kim Kardashian: Hollywood and the Deer Hunter series of games.

Our Analysis:

Investment follows a transformational year for Glu

As a mobile games industry veteran that first found success in the days of feature phones, Glu had initially struggled to make the transition to freemium smartphone games. Following a decline in revenues in 2013, Glu’s 2014 total of $223m was up 111% on 2013; largely thanks to its hit Kim Kardashian branded title and the continued success of its Deer Hunter franchise.

The value of hit titles – but long term success is challenging

Glu’s turnaround underscores how a hit title can transform a company’s fortunes. Since Q3 2014 it reported a positive income for three quarters in a row – its first profits in more than eight years of operations. Glu is on a positive trend, but its narrow (less than 5%) margin point to the aggressive competition of the mobile games industry outside the very top tier of publishers. The dependence on hit titles also highlights one of the risks in the mobile games business as Glu’s future prospects are equally vulnerable to falling victim to the level of competition in mobile.

Glu’s recent success has been based on its licensed Kim Kardashian title. It has also agreed celebrity partnerships with Kylie & Kendall Jenner and Britney Spears. Such deals will add an additional partner to split revenues which limits the company’s profitability. The celebrity endorsements are time limited and could also lose its relevance and limit the opportunity for long term success.

 

International expansion will help both parties

Despite early investments in China, Glu acquired Chinese developer MIG games in 2007, Glu’s revenues are strongly dependent on North America, which accounted for 71% of Q1 sales. The relationship will benefit both parties. Glu’s relationship with Tencent will help it gain a foothold in Asia and Glu will also help Tencent bring mobile games to Western markets. So far Tencent’s mobile games strategy, tied to its WeChat messaging platform, has been focused mainly on its domestic Chinese market.

Glu’s North American strength and dependence on branded IP means it may not match Tencent’s previous acquisition, Riot Games’, success in China through its League of Legends title. Glu’s IP may not have the same resonance in Asia and it will need to work with Tencent and local partners to develop relevant games.

Tencent’s ecosystem expansion

This move is the latest in Tencent’s recent flurry of investments and acquisitions that span a broad range of mobile and digital content and services industries. Tencent’s recent investments include stakes in:

  • Games: Kamcord, 4:33 Creative Labs, Dots, Hammer and Chisel, Glu Mobile
  • Hardware: Tile, Scanadu
  • Health: Picooc, Ting Ting
  • Payments: M4JAM
  • Social: Blink, Breadtrip, SketchMe, Whisper
  • Services: Didi Dache (taxi app), Weebly (web services), 58 (local search)

Organization
Glu Mobile Tencent
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