An Apple Derivative Play of a Different Kind
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s been a few days since Apple (NASDAQ: AAPL) launched its latest and greatest iPhone. While the army of Apple-haters (read as Android-lovers) has been working overtime in bashing the device for its shortcomings and muted innovation, more than two million pre-orders in a single day suggest that people buy iPhones as if they are collecting stamps. What’s more, analysts expect Apple to sell around 10 million iPhone 5s this month itself. Gravity defying, indeed!
But I’m not going to discuss sales of the iPhone 5 in this blog. Rather, I will discuss the trickle-down economics of iPhone 5 sales on a relatively-lesser known company.
Looking Beyond Conventional Apple Plays
Earlier, I have told you about a number of stocks such as Cirrus Logic (NASDAQ: CRUS), Skyworks Solutions and other stocks that have gained immensely from their relationship with Apple. While these companies have witnessed rapid growth in their top lines by selling components for iDevices, I will now take a look at an Apple play of a different kind.
I have been bullish on mobile games maker Glu Mobile (NASDAQ: GLUU) for some time now. The company makes great games, and I can say that since I have a bunch of Glu’s games on my smartphone. Apart from this, Glu has been growing its business strategically. On one hand, its engineers are making great games, while on the other, Glu is making smart acquisitions.
The company has been riding the smartphone revolution nicely over the past year and has taken investors on a joyride as well. Take a look.
Enter the iPhone
Going forward, I expect that Glu will get better. It has a number of games in its arsenal for the rest of the year. It had synchronized their launch with the release of the iPhone 5 which seems to be a masterstroke now. The stock did get some bashing last quarter after it issued a glum outlook for the ongoing quarter as most of its game releases were scheduled for late September. But now, Glu investors can breathe easy.
According to a recent article on Reuters, Glu expects game sales on the iOS platform to make for two-thirds of its revenue this year, up from one-third last fiscal. While too much dependence on Apple’s iOS is a risk, it is a huge opportunity as well. For example, Glu Mobile’s top line received a solid bump last year after the iPhone 4S was released and helped it in surprising its own revenue guidance.
Moreover, we have already seen Cirrus Logic, which supplies audio codecs for iDevices and derives two-thirds of its revenue from Apple, expecting a massive boost to its top line in the next two quarters. Cirrus’ latest guidance calls for an 80% improvement in the September quarter as compared to last year. Thus, I won’t be surprised to see Glu make huge strides as well, considering that the iPhone 5 might sell in gargantuan numbers as the holiday season approaches.
Glu’s games have been favorites on Apple’s iOS store, regularly featuring among the top 100 grossers. But its reach isn’t restricted only to Apple’s store. It had the maximum games among the top 100 grossers on Google’s Play store after social butterfly Zynga. And we shouldn’t count out the emergence of the Windows Marketplace either where Glu’s games carry high ratings.
Thus, even though Glu expects to rake in most of its revenue from Apple’s platform, it also has a solid presence on Android and Windows Phones as well. Diversification is certainly a virtue and Glu is following that. But it is counting the most on games sold on the iOS platform now, especially after the launch of the iPhone 5.
In addition, Glu also looks like a good prospect for the long run. The company has been growing its business methodically and strategically, makes addictive games and is well-positioned to ride on the growth of mobile gaming. All these factors led me to make an outperform CAPS call on Glu Mobile, and my call has been justified so far. And considering the catalysts that lie ahead, I believe Glu Mobile will go higher.
Know What You Own
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TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Cirrus Logic. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.