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Glu Mobile’s great user acquisition experiment

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Glu Mobile’s great user acquisition experiment
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These are heady times for Glu Mobile.

After years of being mobile gaming’s perennial failure, the $45.5 million purchase of US developer Crowdstar in November 2016 can now be seen as its launchpad to success.

Not only has Crowdstar’s existing title Covet Fashion continued to generate more than $10 million a quarter but new game Design Home is Glu’s biggest hit since Kim Kardashian: Hollywood.

In the past quarter, it generated $22.5 million in bookings, or 27% of Glu’s total.

Combined with the efforts of new CEO Nick Earl to optimise revenues from the company’s older - so-called ‘evergreen’ - titles such as Kim Kardashian Hollywood and Cooking Dash, and Glu has upgraded its 2017 full year sales guidance for the second time.

At the start of 2017, it predicted a bookings high point of $215 million; that’s now increased to $312 million and it wouldn’t be a surprise if it goes higher still.

Skin in the game

So what’s the secret of Glu’s success?

Certainly the core appeal of interactive interior design app Design Home has been vital to Glu’s performance, while the addition of the official MLB licence to Glu’s annual Tap Sports Baseball game for 2017 has also boosted that franchise’s sales year-on-year.

More significant, however, has been Glu’s decision to actively spend - what is for it - relatively large amounts of cash to support these games in terms of user acquisition.

Even before Glu started spending a lot of UA money, <em>Design Home</em> was performing well, especially on Google Play
Even before Glu started spending a lot of UA money, Design Home was performing well, especially on Google Play

Previously the company tended to be revenue-neutral in terms of UA, choosing to spend roughly the same on UA as it generated in terms of in-game advertising and offerwalls.

This changed at the start of 2017 as UA spending rose from around $10 million a quarter to $14 million in Q1 and $27 million in Q2. In terms of that Q2 spending, $4.8 million was spent marketing MLB Tap Sports Baseball 2017 and $13.9 million on Design Home.

“Glu Mobile spent $13.9 million marketing Design Home in Q2.”

Glu expects to spend a similar amount on Design Home in Q3, and more generally expects to breakeven on its UA spend for Design Home within eight months.

Into the weeds

Breaking out its strategy in more detail in its financial presentation, Glu revealed its Q2 spend on Design Home resulted in 3.7 million downloads, giving an average cost per install of $3.74.

In terms of immediate return on investment, Glu generated $7.8 million in revenue from those 3.7 million installs, and so expects to generate a further $6.1 million over the next five months in order to hit its eight month breakeven prediction.

After that point, any revenue from those players becomes gross profit.

Equally interesting is the fact that during Q2 Design Home also gained 3.4 million organic downloads. How directly linked these are to the game’s marketing is unclear, but on a like-for-like basis, these downloads could have generated a further $7.2 million in bookings.

Given this situation, Glu will obviously continue its UA spending for Design Home in the coming quarter, so it will be fascinating to see in three months time whether this level of player spending also continues.

Over time, UA spending can become less effective as it becomes harder to target players who might like the game in question, although given Design Home’s broad female demographic, sources such as Instagram and Pinterest should provide valuable sources of downloads for months to come.

The bigger picture

More importantly, Glu Mobile is now relying on Design Home to maintain its performance for wider corporate reasons too.

“Glu Mobile is on the launchpad to success but blast-off is not yet guaranteed.”

For, despite its recent sales growth, Glu Mobile remains loss-making; something it expects to continue even if FY17’s annual sales beat its current $312 million guidance.

Indeed, for Glu to sustain profitability in 2018 it will need Design Home - as well as evergreen titles like Cooking Dash, Restaurant Dash with Gordon Ramsay and Kim Kardashian: Hollywood - to maintain their current performance.

It will also need contributions from some of the new games it has in development which include its much-anticipated Taylor Swift title and gritty zombie shooter Last Day Alive.

In that context then, things are going well for Glu Mobile, but it’s firmly still sitting on the launchpad to success. The countdown may have started but blast-off is not yet guaranteed.