Mobile games are expected grow strongly over the next couple of years, which presents significant opportunities for game makers like Glu Mobile (GLUU) and Zynga Inc (ZNGA). Per Venturebeat, which quoted a newly released report from Newzoo, revenues from mobile games will reach $30.3 billion in 2015 from the estimated $25 billion in 2014.
Mobile game revenues are expected to surpass console revenues driven by strong ongoing adoption of smartphones and tablets in both mature and emerging markets. Per another market research firm Superdata, which has much more conservative estimates, mobile game revenues are expected to reach $40 billion in 2017.
According to Newzoo, revenues from mobile games are expected to jump 42% year over year in 2014. The North American market is now expected to grow 51% year over year, while Western Europe is expected to grow 47%. Southeast Asia and China with 86% growth rate are the fastest-growing mobile game market.
Glu Mobile vs Zynga – Fundamentals and Financials
We believe that both Glu Mobile and Zynga are well positioned to benefit from the strong mobile game market, going forward. However, growing competition from the likes of King Digital (KING), Rovio, DeNA, Gree and established players like Electronic Arts (EA) will make it difficult for both the companies to register strong growth in the near term.
Glu Mobile is set to release third-quarter 2014 results on Oct 29. This Zacks Rank #2 (Buy) stock has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 222.86%. Last quarter, the company posted a 71.43% positive surprise.
However, Glu Mobile’s hit game Kim Kardashian: Hollywood is losing popularity, despite recent content addition and availability on Facebook (FB). We believe that this will negatively impact Glu Mobile’s third-quarter results.
On the other hand, Zynga is set report the third-quarter 2014 results on Nov 6. This Zacks Rank #3 (Hold) company has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 37.14%. Last quarter, the company posted a 33.33% positive surprise.
Although Zynga has launched a couple of new games in the third quarter, like NFL Showdown and Zynga Poker, we do not believe they are potent enough to drive significant top-line growth in the near term.
Additionally, our proven model conclusively shows that neither Glu Mobile nor Zynga are likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen.
Zacks Rank #1, 2 or 3 increase the predictive power of ESP. However, both Glu Mobile’s and Zynga’s Earnings ESP stand at 0.00%, which make surprise prediction difficult.
Conclusion
Despite this uncertainty, we believe that investors may prefer Glu Mobile over Zynga in the near term. Glu Mobile has an innovative product pipeline for 2015, which includes Car Town and free-to-play Terminator mobile game. However, Zynga’s focus on slowing social gaming market and lack of new franchise’s remains a major headwind.
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