Glu Mobile Inc. (NASDAQ:GLUU) may be in trouble as downloads of its popular Kim Kardashian: Hollywood game decline. So is the game maker following in the footsteps of other recent one-hit wonders (i.e., Zynga Inc (NASDAQ:ZNGA)) in the mobile gaming industry?

The folks at Street Sweeper certainly think so, and they recommend shorting the company’s stock. However, it seems like they’re missing a couple of important things about Glu Mobile’s business model that may sustain it despite the falling popularity of its recent hit game.

As Kim Kardashian goes, there goes Glu Mobile

In a post on Seeking Alpha this morning, Street Sweeper Senior Investigative Reporter Sonya Colberg noted that there have been signs that Kim Kardashian‘s popularity is fading. For example, she said the US Weekly magazine photo of the reality TV star in a bikini after she had a baby sold 100,000 fewer magazines than was usual.

Glu Mobile introduced its Kim Kardashian: Hollywood game in June, but Colberg warns investors that the company arrived to the party late because the starlet’s popularity was already in decline.

Glu Mobile an “ugly bet”?

She thinks the decline in the popularity of the Kim Kardashian game is just one in a number of problems that will make Glu Mobile “an ugly bet.” She noted that as recently as a month ago, the game ranked at number 69 in overall iPhone downloads. However, it has slipped down to the 163rd spot.

By overall grossing money in the U.S., it’s a similar story. In a month, the game fell from the fifth spot down to the 15th slot. She also reports that revenue from the game has been declining since July.

Colberg also said Glu Mobile has essentially sent up a smoke screen by announcing that Facebook Inc (NASDAQ:FB) is distributing the Kim Kardashian game. She quoted an unnamed analyst who said, “Nobody plays games on Facebook anymore.”

Glu Mobile insiders dump shares

The reporter also noted that Glu Mobile insiders have been dumping shares of the game maker’s stock right and left. She said filings indicate almost $1.5 million in insider sales of Glu shares since Aug. 1. In only three days, Vice President of Finance Gregory Cannon and Chief Financial Officer Eric Ludwig sold a total of more than 268,000 shares between them.

However, it’s not uncommon for insiders to sell off their shares and take profits when the price is high. Facebook insiders also started unloading shares when the social network’s stock finally returned to its opening day price and soared beyond it. No one seemed to see their sales as being a big red flag.

What they’re missing on Glu Mobile’s business model

What Colberg failed to note in her article is that the Kim Kardashian game may be just one of many. ValueWalk interviewed an industry expert in August who pointed out a couple of big reasons to go long on Glu.

He noted that the Kim Kardashian game is built on a game engine that can be reused for just about any celebrity. In other words, even if Kim’s popularity keeps declining, Glu Mobile could very easily and inexpensively have another celebrity-focused game pushed out quickly.

Also the company’s business model doesn’t depend on just a single hit, like Zynga’s business model has mostly done so far. All Glu Mobile needs to do is turn a profit on all its games—no matter how successful they really are. If the company keeps using game engines to make games inexpensively, it’s much easier to turn a profit, so even modest success will keep Glu Mobile on the plus side and help it avoid a fate similar to that of Zynga.

In other words, the limited popularity of the company’s other games doesn’t matter much—as long as Glu can turn a profit on all of those games.

Glu Mobile Inc. Slumps On Street Sweeper Short Report
Source: Pixabay