Prospectus Summary
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before buying our common stock. You should read the entire prospectus carefully, including the section entitled “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment in our common stock. Unless otherwise indicated, the terms “Glu Mobile,” “Glu,” “we,” “us” and “our” refer to Glu Mobile Inc., a Delaware corporation, together with its consolidated subsidiaries.
Glu Mobile Inc.
Glu Mobile is a leading global publisher of mobile games. We have developed and published a portfolio of more than 100 casual and traditional games to appeal to a broad cross section of the over one billion subscribers served by our more than 150 wireless carriers and other distributors. We create games and related applications based on third-party licensed brands and other intellectual property, as well as on our own original brands and intellectual property. Our games based on licensed intellectual property include Deer Hunter, Diner Dash, Monopoly, Sonic the Hedgehog, World Series of Poker and Zuma. Our original games based on our own intellectual property include Alpha Wing, Ancient Empires, Blackjack Hustler, Stranded and Super K.O. Boxing. We were one of the top three mobile game publishers in terms of mobile game market share in North America during the third quarter of 2006 as measured by NPD Group, Inc., a market research firm, in its September 2006 “Mobile Game Track Highlight Report,” and in terms of unit sales volume in North America and Europe among titles tracked by m:metrics, another market research firm.
Our business leverages the marketing resources and distribution infrastructure of wireless carriers and the brands and other intellectual property of third-party content owners, allowing us to focus our efforts on developing and publishing high-quality mobile games. For the first nine months of 2006, our largest wireless carrier customers in each region by revenues were Verizon Wireless, Sprint Nextel, Cingular Wireless and T-Mobile USA in North America; Vodafone, Hutchinson 3G, Orange and Telefónica Móviles in Europe; TelCel and Vivo in Latin America; and Vodafone, Hutchinson 3G Australia and Telecom New Zealand in Asia Pacific. Branded content owners, such as Atari, Celador (from which we license the rights to Who Wants To Be A Millionaire? in some European and Asian countries), Fox, PlayFirst, PopCap Games, Sega Europe and Turner Broadcasting, provide us with well-known consumer brands and other intellectual property on which we have based mobile games.
Industry Overview
Juniper Research, a market research firm, in its June 2006 “Mobile Games: Subscription & Download, 2006-2011” report, estimates that the worldwide market for mobile games will grow from $3.1 billion in 2006 to $10.5 billion in 2009, a compound annual growth rate of 50.2%. We believe that the rapid growth of the mobile game market has been driven by continued advances in wireless communications technology, proliferation of multimedia-enabled mobile handsets, increasing availability of high-quality mobile games and increasing end-user awareness of, and demand for, mobile games.
The mobile game market differs substantially from the traditional console game market. Mobile games typically have significantly lower development and distribution costs and longer life cycles than console games. Console game sales depend upon the product cycles of the consoles themselves with large generational shifts between versions of each of the major console platforms every few years. In contrast, the mobile platform is characterized by a gradual evolution of features and capabilities in the many new handsets introduced each year by a large number of manufacturers and carriers. Consumers typically use their console games in the confines of their home, while mobile games are available in all the settings where consumers take their mobile phones. Furthermore, console games are usually developed for a few console platforms at most, which means that the development costs are mostly associated with the original creation and development of the game. However, once developed, mobile games, may need to be customized, or ported, to more than 1,000 different handset models, many with different technological requirements. Therefore, the ability to port mobile games quickly and cost effectively can be a competitive differentiator among mobile game publishers and a barrier to entry for other potential market entrants.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Our Competitive Strengths
We believe we have a proven capability to develop high-quality mobile games that engage end users. Our portfolio includes a variety of genres and is designed to appeal to the diverse interests of the broad wireless subscriber population. We believe that we will continue to be attractive to wireless carriers, content owners and end users because of the following strengths:
Diverse Portfolio of Award-Winning High-Quality Mobile Games. We have developed and published more than 100 casual and traditional games across a number of genres, including action, board game, card/casino, puzzle, sports, strategy/role playing games, or RPG, and TV/movie. No single game contributed more than 10% of our revenues in 2005 or in the first nine months of 2006. Based on numerical ratings by industry review websites, IGN Entertainment, Modojo and WGWorld, we ranked first in terms of average game quality for mobile games released in the first nine months of 2006. We have received numerous industry awards for our games, including IGN Entertainment’s 2005 Editor’s Choice award for best wireless puzzle game for Zuma, The Academy of Interactive Arts and Sciences’ 2006 Game of the Year award for Ancient Empires II, and the 2005 award for Best Mobile Sports Game from CNET’s Gamespot for Deer Hunter.
Global Scale in Distribution, Sales and Marketing. We currently have agreements with more than 150 wireless carriers and other distributors, which together serve more than one billion subscribers worldwide. Our games regularly receive premium placement on these carriers’ game menus, or decks, accessed through mobile handset screens. Given the small size of these screens, there are significant advantages to being placed in the initial list of games that an end user sees on the deck, sometimes referred to as premium deck placement, rather than being placed lower on the list where an end user may need to scroll or search to find a game.
Strong Relationships with Branded Content Owners. We have built relationships with a number of key branded content owners. The content providers that accounted for the largest percentage of our revenues for the first nine months of 2006 were Atari, Celador (from which we license the rights to Who Wants To Be A Millionaire? in some European and Asian countries), Fox, PlayFirst, PopCap Games, Sega Europe and Turner Broadcasting. In addition to these relationships, we have recently licensed brands or other intellectual property from Harrah’s, Hasbro, Microsoft and Sony. We believe that branded content owners increasingly understand the complexities of developing their own internal mobile entertainment capabilities, and therefore increasingly wish to work with publishers with a history of successfully developing and publishing high-quality games, as well as with the carrier relationships and marketing resources to publish their games on a worldwide basis.
Proprietary Porting and Data Mining Capabilities. We have developed proprietary technologies and processes designed to increase the profitability of our games. These technologies and processes include a standardized development process designed to facilitate efficient porting, a tool library covering each handset model and ongoing work flow analysis tools. As of September 30, 2006, we had the capability to port approximately 40,000 SKUs per month, with each SKU characterized by title per language per handset per carrier. Our data mining capabilities provide us with the ability to analyze the revenue potential of each game and to improve profitability through ongoing decision support for additional porting, pricing and marketing programs. Together, our porting and data mining capabilities help us in our efforts to increase the initial sales of each game and support continuing premium deck placement.
Experienced Management Team. In addition to their experience in mobile games, our management team has significant experience in the video game publishing, wireless communications, technology and media industries. We believe that this broad expertise allows us in a timely manner to design, develop and deliver games and other mobile entertainment applications that are designed to address the demands of our market. We believe our management team’s expertise and continuity is a significant competitive advantage in the evolving mobile entertainment publishing market.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Our Strategy
Our goal is to be the leading global publisher of mobile games and other mobile entertainment applications. To achieve this goal, we plan to:
Continue to Create Award-Winning Games through Ongoing Investment in Our Studio and Technical Development Capabilities. Our creative and technical teams are recognized in the industry for creating high-quality, award-winning mobile games. Our technical teams leverage proprietary technologies and standardized automated processes that are designed to enable rapid, timely, high-quality and cost-effective development and porting of mobile games. We believe that this combination provides us with a competitive advantage over other industry participants that have traditionally outsourced porting and development or used more manual processes.
Leverage and Grow Our Portfolio of Titles. We have developed a diverse portfolio of more than 100 games, including perennial titles that we believe can produce revenues for significantly longer than the typical 18 to 24 month revenue lifecycle for mobile games. In addition, successful games give us the potential to develop and publish a series of sequel titles, sometimes referred to as franchise titles. For both perennial and sequel titles, we leverage existing development, porting and marketing investments and broad end-user awareness in order to increase the revenue lifecycle of an existing game or increase the chance of success for new games. Games for the mobile platform also provide potential opportunities for us to publish or license our intellectual property for use on other platforms such as online, console or personal computer games. We plan to continue developing perennial and franchise titles, and believe that our proprietary technology and development process capabilities provide us an advantage over our competitors in the coordinated launches frequently required of multi-platform games.
Expand and Strengthen Our Distribution. We believe that wireless carriers are increasing their focus on the leading mobile game publishers in order to improve the consistency and quality of the games that they offer on their handsets. We intend to take steps to increase our market share with our existing carriers and distributors and add additional relationships, particularly in new geographies. In addition, we have increased and expect to continue to increase our non-carrier distribution capabilities through alternative channels such as Internet portals and “off-deck” aggregators.
Build Upon Our Position as a Leading Global Publisher to Strengthen Licensing Relationships. We believe that, as a leading independent publisher of mobile games, we will continue to benefit from branded content owners’ increasing recognition of the challenges associated with mobile entertainment publishing. As a result of those challenges, some branded content owners are reducing their own internal mobile development efforts. We believe that branded content owners are also becoming more reluctant to contract with smaller mobile game publishers that do not have a reputation for quality development or that do not have the breadth of carrier relationships and technological capabilities necessary to publish a game on a worldwide basis. We intend to capitalize on these trends and on our reputation with non-mobile content owners as a leading mobile partner to strengthen our existing licensing relationships and develop additional relationships.
Gain Scale through Select Acquisitions. We have acquired and integrated two mobile game companies — Macrospace and iFone. We believe that there may be future opportunities to acquire content developers and publishers in the mobile entertainment or complementary industries and we intend, where appropriate, to take advantage of these opportunities.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Risks Affecting Us
Our business is subject to numerous risks, which are highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks represent challenges to the successful implementation of our strategy and to the growth and future profitability of our business. Some of these risks are:
Corporate History and Information
We were incorporated in Nevada in May 2001 as Cyent Studios, Inc. and changed our name to Sorrent, Inc. later that year. In November 2001, we incorporated a wholly owned subsidiary in California, and, in December 2001, we merged the Nevada corporation into this California subsidiary to form Sorrent, Inc., a California corporation. In May 2005, we changed our name to Glu Mobile Inc. Prior to completion of this offering, we intend to reincorporate in Delaware. In December 2004, we acquired Macrospace Limited, or Macrospace, and in March 2006 we acquired iFone Holdings Limited, or iFone, each a company registered in England and Wales.
Our principal executive offices are located at 1800 Gateway Drive, Second Floor, San Mateo, California 94404 and our telephone number is (650) 571-1550. Our website address is www.glu.com. The information on our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus.
Alpha Wing is our registered trademark in the United States, and Glu, Glu Mobile, our corporate logo, our ‘g’ character logo, Ancient Empires, Blackjack Hustler, Stranded and Super K.O. Boxing are our trademarks. Other trademarks appearing in this prospectus are the property of their respective holders.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1The Offering
The number of shares of common stock to be outstanding after this offering is based on 63,169,489 shares of our common stock outstanding as of September 30, 2006, and excludes:
callerid=999 iwidth=455 length=90Except as otherwise indicated, all information in this prospectus assumes:
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Summary Consolidated Financial Data
The following tables present summary consolidated financial data for our business. You should read this information together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, each included elsewhere in this prospectus.
We derived the statements of operations data for the years ended December 31, 2003, 2004 and 2005 and the nine months ended September 30, 2006 and the balance sheet data as of September 30, 2006 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the statements of operations data for the nine months ended September 30, 2005 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary to state fairly the results of operations for the nine months ended September 30, 2005. Our historical results are not necessarily indicative of the results we expect in the future, and our results for the nine months ended September 30, 2006 should not be considered indicative of results we expect for the full fiscal year.
The pro forma per share data give effect to the conversion of all our outstanding convertible preferred stock into common stock upon the completion of this offering and adjustments to eliminate accretion to preferred stock and the charges associated with the cumulative effect change and subsequent remeasurement to fair value of our preferred stock warrants. For further information concerning the calculation of pro forma per share information, please refer to note 2 of our notes to consolidated financial statements.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1 callerid=999 iwidth=455 length=60 callerid=999 iwidth=455 length=84The balance sheet data as of September 30, 2006 are presented below:
callerid=999 iwidth=455 length=60 End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE