The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First. 

‘Honor Of Kings’ Could Boost Glu Mobile’s Revenue

Summary:

• I Know First has bullish algorithmic forecasts for GLUU. Monthly technical indicators and moving averages are also endorsing a buy for GLUU.
• I am not yet going to go long GLUU. However, I know why it’s getting positive endorsement from I Know First’s deep neural network.
• Tencent’s upcoming U.S. release of its hit Chinese mobile MOBA game could lead to Glu Mobile being the publisher for it for North America and Latin America
• Tencent has chosen Netmarble as the publisher of the Korean version, Penta Storm, of Honor of Kings in South Korea.
• Garena (partly-owned by Tencent) is likely to become the publisher for South East Asian countries. Glu Mobile is also partly-owned by Tencent.

I am not encouraging people to go long on Glu Mobile (GLUU) right now. However, I cannot ignore the bullish near and long-term algorithmic forecasts for GLUU stock. The self-learning deep neural network of I Know First must know something good is coming to Glu Mobile. My guess is that it appreciates the high probability of Tencent (TCEHY) choosing Glu Mobile as the North American publisher of its mega-hit Chinese mobile MOBA (Multiplayer Online Battle Arena) game, Honor of Kings.

Getting the right to publish theEnglish version (now called Arena of Valor) of Honor of Kings in North America could justify I Know First’s very confident one-year positive endorsement for GLUU. As per SuperData Research, the China-only Honor of Kings is already the world’s top-grossing game. It made $150 million last June.

Honor of Kings is a perfect mobile port of Tencent’s top-grossing PC MOBA game, League of Legends. Like their Chinese counterparts, North American players of League of Legends will also flock to the English version of Honor of Kings, Arena of Valor. Almost 11% of active 100 million++ League of Legends players are located in North America. Getting the right to publish Arena of Valor in North America could increase Glu Mobile’s monthly bookings by as much as $30 million.

Tencent is deliberately releasing international versions of Honor of Kings in areas where League of Legends is very popular. It needs to do this because its new government-inspired game time limit for Chinese  players is going to slow down the China revenue of Honor of Kings. Tencent needs to bring Honor of Kings to other countries where governments will not mandate it to curb the addiction of mobile gamers.

(Source: Unranked Smurfs)

Why It Matters

Lack of hit mobile games meant Glu Mobile’s Q2 2017 bookings was only $82.5 million. Even if Glu Mobile (partly-owned by Tencent) splits the net revenue (bookings minus the 30% cut of app store owners like AAPL and GOOG), Arena of Valor’s microtransactions in North America could still be reported as the sole net revenue of Glu. Getting $10 million or $20 million in new monthly net revenue could notably boost Glu’s investment quality.

The China-only Honor of Kings became the world’s top-grossing mobile game because it is more fun and convenient to play than the PC-only League of Legends. You cannot play League of Legends while you stuck in traffic. You can get penta-kills while cozily in bed playing Honor of Kings.

(Source: SuperData Research)

Glu Mobile’s expected FY 2017 revenue is only $312 million. Getting the publishing right on Arena of Valor could generate at least $120 million in new yearly revenue for Glu Mobile. Its stock will likely shoot up by 30-50%  if Glu could boost its annual revenue by more than 38%. My fearless forecast is that the e-sports quality of Honor of Kings/Arena of Valor will make it more successful than Kim Kardashian: Hollywood.

Like it did with Honor of Kings in China, Tencent will also probably create a professional e-sports league for Arena of Valor in North America, Asia, and Europe. Tencent has a five-year, $15 billion budget to develop professional e-sports leagues. The tons of cash prizes in Honor of Kings and League of Legends e-sports leagues will require players to continuously do in-app purchases on Arena of Valor (so they can improve their skills and library of heroes).

It is my fearless forecast that Arena of Valor could generate monthly bookings of $10 to $30 million in the U.S. alone. Tencent licensed DC Universe super hero characters to differentiate Arena of Valor from Honor of Kings. Americans love their DC and Marvel superheroes. PC player of League of Legends will immediately get intrigued with Arena of Valor

Arena of Valor is being published as a beta game in Europe under Tencent’s proxy firm in Singapore, Proxima Beta. The Asian publication rights will probably go to Garena (partly-owned by Tencent). Consequently, Glu Mobile (or Tencent’s subsidiary Supercell) might get the right to publish Arena of Valor in English speaking countries like the U.K., Australia, and New Zealand.

If Glu Mobile gets the publication rights of Arena of Valor in the U.K., Australia, and New Zealand, it could get another $5 to $10 million in new monthly bookings.

Conclusion

Tencent’s hit mobile games like Honor of Kings could help Glu Mobile its bookings. Glu is partly-owned by Tencent and Tencent has compelling reasons to see it succeed. My fearless forecast is that if Glu Mobile can be an effective North American publisher of Chinese mobile games, it can be bought out like what Tencent did with Supercell.

Mobile is the future of video games. As per SuperData Research’s prediction, revenue from mobile games will hit $58.1 billion. It will also have a total addressable audience of 3.12 billion. Mobile games developers/publishers like Glu Mobile therefore still deserves consideration from long-term investors who like the video games industry.

Analysis of monthly technical indicators and moving averages is also bullish for GLUU. It is a strong indicator that many investors are still hopeful over Glu Mobile’s future in mobile games. I am not going to go long GLUU though. I still want to wait if it could really get publication rights for Arena of Valor.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.