Glu Mobile Inc
Q1 2015 Earnings Call Transcript

Published: 30 Apr 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Glu First Quarter 2015 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to turn the call over to your host for today, Mr. Greg Cannon, Vice President of Finance. Sir, you may begin.

[Greg Cannon:]

Good afternoon, everyone and thank you for joining us on the Glu Mobile first quarter 2015 financial results conference call. This is Greg Cannon, VP of Finance and Investor Relations from Glu Mobile. On the call today we have Chairman and CEO, Niccolo de Masi and COO and CFO, Eric Ludwig. During the course of this call, we will make forward-looking statements regarding future events and the future financial performance of the company. Any forward-looking statements that we may make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of future events. We caution you to consider the important risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release and this conference call. These factors are described more fully in our documents filed with the SEC, specifically the most recent reports on Form 10-K and Form 10-Q. During this call, unless otherwise stated, all financial results, metrics and guidance will be presented on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results and we encourage investors to consider all measures before making an investment decision. For complete information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today’s press release regarding our first quarter result as well as the supplemental presentation accompanying today’s earnings call that can be accessed via our Investor website at www.glu.com/investors. Please also note that all references to EBITDA, our adjusted EBITDA calculations, which Glu defines as non-GAAP operating income or loss excluding depreciation. Finally, please note that during this call we will be providing information regarding the total number of social followers of certain celebrities. We calculate the total social followers by aggregating the total volume of friends and followers a celebrity has on Facebook, Twitter, Instagram, Vine, Vivo and Tumblr. Please not that these numbers will contain some overlap of these social audiences between channels and celebrities. With that, I will turn the call over to Niccolo.

[Niccolo de Masi:]

Good afternoon and welcome to everyone joining us as we discuss a fantastic quarter in which Glu delivered well ahead of expectations. We outperformed the midpoint of our Q1 2015 revenue guidance by 22%. Q1 EBITDA came in ahead of the midpoint of guidance by $4.9 million. Q1 revenue is up year-on-year by 33%. Due to our momentum exiting Q1, we are raising expectations for 2015 to record levels. Instead of $245 million to $275 million, our guidance for full year 2015 revenue is now $262 million to $287 million. Per last quarter, our full year guidance for 2015 does not assume any outsized hits. As such there remains significant opportunity for upside in all financial metrics. I am delighted this afternoon to make two significant and exciting announcements. The first, is that we’ve signed an exclusive mobile gaming partnership with Britney Spears for up to eight years. Britney is an iconic Grammy Award winning talent with nearly 90 million total social followers and a highly successful Las Vegas show. She has sold over a 100 million singles, 100 million albums, won six MTV Video Music Awards, and nine Billboard Music Awards. Our Britney game will launch in the first half of 2016. The signing of Britney Spears to Glu is part of our ongoing strategy to build the premier Hollywood and celebrity gaming platform. Along with our other partners, this will take the total celebrity social following of our live games to over a 430 million by the middle of 2016. Given our pipeline, we now anticipate our games benefiting from the supports of approximately 500 million total celebrity social followers by the end of 2016. I am also very proud to announce today that we have stuck a strategic relationship with arguably Asia’s largest Internet company and the world’s largest gaming company, Tencent. Tencent has agreed to purchase 21 million shares at $6 per share in a transaction bringing $126 million of gross proceed to Glu. As part of this investment, Steven Ma, SVP of Tencent’s Interactive Entertainment Group joins our Board of Directors. Steven Ma runs all of Tencent’s online and mobile gaming activities which accounted for over $7 billion of Tencent’s total 2014 revenue. In addition to a highly value added board member, Tencent’s minority stake will serve as backdrop for an expected operational partnership with Glu. We anticipate this partnership enhancing Glu success in China and that Glu may potentially publish Tencent games in the west. It also provides Glu with access to Tencent’s advanced socio competitive mobile gaming expertise. Tencent’s investment in Glu is at a 22% premium to the one month average share price prior to transaction. I view this as recognition of our operating momentum and unique portfolio approach to grow in our business. Our Q1 outperformance was underpinned by the continued success of our three largest titles. Kim Kardashian

[Eric Ludwig:]

Thank you, Niccolo. I am extremely pleased with our continued strong execution during the first quarter. We exceeded expectations across all key metrics. I’ll first detail our Q1 results and then conclude by providing our outlook for the second quarter and full year of 2015. Our key financial highlights for the first quarter 2015, our total revenues were $62.4 million, 33% year-over-year increase. EBITDA was $3.9 million and EBITDA margin was 6.2%. Our net income was $2.1 million or EPS of $0.02 per diluted share. All these results were above our guidance for the quarter. The first quarter saw a continued diversification in our revenues from both the top five titles as well as some licensed IP. Our five largest titles during the first quarter represented 81% of total revenue in line with last quarter. The largest title was Kim Kardashian

[Operator:]

[Operator Instructions] Our first question comes from the line of Doug Creutz of Cowen and Company. Your line is open, please go ahead.

[Doug Creutz:]

Thank you. Niccolo, you said something intriguing which is that there was a potential for you to act as a publisher for Tencent outside of China. Just wondered if you might want to amplify your thoughts on what that could mean and in terms of how it would be affect the scale of your business.

[Niccolo de Masi:]

Sure. Look early days on any of the operating partnerships that we intend to strike with Tencent over the long term. So there is certainly nothing signed on either direction, but I think that there is no doubt the flow of information can go both ways, Glu has genre leading positions. It also has increasingly geographic leading positions. And I think Tencent’s been intrigued with our sort of methodical approach to how we’ve grown our portfolio of sort of annuity franchises and brands and titles and how we think about that. As well as the fact that we do have, I would argue, industry leading sales, marketing and distribution practices, methodologies and techniques for - you know the Western markets, certainly excluding Korea, Japan and China. So I think that there are revenue synergies in both direction, but there will be more covered on this when we have something concrete signed in either direction. I think what I would say Doug is that it will be a case of fewer, bigger, better, so this won’t be about a volumetric approach in either direction. It will be a case of effectively finding games that we know have worked in China that we might be able to bring in a more localize way outside of China and frankly vice versa. We do believe we can grow our China business considerably given how large that game market is now. I mean Apple I think announced in the last - few days or so that they had about $2.5 billion being paid out in iOS alone in the last 12 months and the Android market is about the same size. So we are scratching the surface of the kind of the revenue that Glu could generate there. We are probably also scratching the surface of what Glu could do long term with more social features, better socio competitive features across our portfolio. And so we hope to learn from a lot of Tencent’s MMO best practices over the long term, but once again it will be a case of one or two things a year that we think are needle moving in both directions as opposed to a peanut butter approach.

[Doug Creutz:]

Okay, terrific. Thank you.

[Operator:]

Thank you. Our next question comes from the line Darren Aftahi of Northland Securities. Your line is open, please go ahead.

[Darren Aftahi:]

Hey guys, thanks for taking my questions. Just a couple, on the Tencent, can you just kind of help us understand how this may synthesize your approach to that market, I know you’ve been there but specifically kind of with your developer community over there? And then secondly, on the Britney Spears relationship, just trying to understand as you approach celebrities, is the sales cycle shortening, what is the strategic rationale for Britney Spears? And then does Tencent open you up to get into the celebrity market potentially in Asia-Pac? Thanks.

[Niccolo de Masi:]

Sure. Okay, so Glu has been in China really since the start of 2008, we’ve had over a 100 people there for a long time and we have of course not only a publishing organization there, but we also have a studio that build games for the global market. We make the majority of our revenue in China off of iOS rather than Android platforms and this is the area that we see room for the biggest bump in partnership with Tencent. So we think we can grow the Android, fragmented Android landscape in China because there is no Google Play is obviously something that can be tapped, but Glu has not tapped it thus far to the extent that we have an iOS to the extent we can. So you know obviously Tencent controls all of the messaging platforms I think something like 800 million users in total across everything from QQ to WEChat to you name it as an internet messaging service and they were the pioneer in that. So it’s a case of finding a few maybe one project a year, to finding a few projects to work closely with them on to take advantage on their nearly endless distribution capabilities if you look at how we could integrate a WEChat product or a QQ product and so on into the social features and socio competitive features that we are increasingly going to be building particularly as we look to cater games more for China and more for Greater China and Asia for that matter. So Tencent has incredible expertise when it comes to building connected functionality and also smaller binary games which is important for the Android market in China. They are also relevant - and your second question Darren on the celebrity front. So we obviously think that not only can Glu keep trying to find Tier 1 global celebrities but it’s possible to look at celebrities to target specific markets. So a market as big as China or Japan is certainly large enough to support games tailored for those markets and even celebrities games tailored for those markets. And these are the kinds of things that we will be investigating nothing has been signed or concrete. But there is no doubt that Tencent is I think maybe on the podium certainly but tied for first and second place as regards to things like the largest internet video and music services as well in China. So there is a lot of trans media opportunities that can benefit our celebrity games certainly in China, possibly beyond there. Taking the rest of your second question Darren, we’re currently focused on signing celebrities with brand recognition, big social followings and ultimately that wants to partner with us in an authentic way to build games it can resonate globally. So people like Britney Spears obviously have been successful for more than a decade. They have brand recognition and social following everywhere not just developed nations but also emerging markets. I am not going to be able to comment too productively on the sales cycle because really we’re looking for a spacing out of these games and a differentiation of the engines and mechanics, because ultimately we don’t want to be competing with ourselves. And that’s what we are doing when we tell you that her game will launch in the first half of 2016. So we are talking a year out from today, but we are already hard at work at differencing that gaming experience to make sure that when it comes out, it’s unique, has unique features, but still has a global appeal and takes advantage of everything that Britney can bring to bear. Last thing I guess will say on the Chinese market obviously is Tencent has plenty of investments, minority investments in the private market in China. We are their only public gaming investment with a board seat. Obviously they are a minority investor in Activision but without a board seat and we’re the only mobile play. So we are pleased at that and we think that we’ll be able to make frankly make hay with that to drive a lot of value for Glu shareholders over the coming years.

[Darren Aftahi:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Mike Olson of Piper Jaffray. Your line is open, please go ahead.

[Michael Olson:]

Hey good afternoon. Just following on that Britney Spears question, so you now have two games that are based on female pop musicians, is there - you’ve just mentioned you’ll space in that, but is there potential that it create some degree of overlap between the two or do you feel like these two celebrities bring two different sets of players to the table? And also that what are the categories that you are thinking about on the celebrity front beyond musicians and kind of Kim Kardashian less general group?

[Niccolo de Masi:]

Yes, obviously we are doing well in the reality space. Kims are star there and her sisters Kendall and Kylie Jenner will have a game by the end of this year. And I think between the two of them we’ve got a really strong foothold. I would argue we have the greatest reality talent that we could have in following with those games. See I would - when we talk about musicians, let’s stand back and look at entertainment. There is a lot of books to get published every year, a lot of movies are made, a lot of TV serials are made, a lot of albums are made. And at the end of the day Glu is build in a celebrity platform out to be the best for each one of the differentiated unique ways that particular talent can interact with their fan base through a game of through the mobile interactive, entertainment ecosystem ultimately. So it’s a never ending feast in terms of trying to build the next greatest experience. And ultimately we do believe that just like their space in the recorded music space for Britney and Katy and they are both female musicians and so on. There is certainly space for more than one female musician in the game sector. I don’t want to comment specifically on how we are differentiating a game, so that’s obviously a trade secret. But to say as for the first question from Doug, we of course don’t want to be cannibalizing our self and so we are going to tremendous length to differentiate titles, the mechanic, the engine, the styles of them, the emphasis of them. And yes, ultimately there will be some overlap of diagram of course. When you have 90 million or a 170 million social followers, they undoubtedly are some people that follow both of these talented young ladies. But we believe the market is certainly going to continue to grow. We think emerging markets are very exciting for Britney because she has effectively two or three generation of fans that have grown with here and she is still relevant for teenagers and young adults in the market today that wouldn’t have followed her or when she first broke on to the scene 50 years ago. She is a transmedia talent. Obviously her Las Vegas show is unique. So these are the kinds of things that we will look to work into the game play. And we’ll increasing be looking to find ways to synergize between new life events and also potentially new media releases and our game. And then ultimately your last part of question which is other categories, we haven’t changed over internet and obviously there is only kind of few categories of talent in the world. We haven’t done much on the sports base directly, although obviously Dave Ortiz is the face and supporter of Tap Sports Baseball 2015. We’re of course looking the male category, we’re of course continue looking the sports category. But you should watch the space because I have highlighted my prepared remarks that we are 400 million total social followers now by the middle of 2016, I previously said that would take us to the end of 2016 are now raising that number to say that will near to 500 million and 400 million by the end of 2016. So we have a pipeline, we have continue for momentum and we’re looking to make the best games and work with the best partners, we’re not trying to rush or certainly not taking of all the metric approach and we’re still willing to look or looking to work with the biggest names and biggest followings.

[Michael Olson:]

Okay. And then thank you. And then Eric just one clarification, what you said about which two game will account for 28% of revenue in 2015, is it KKH and did you say Racing Rivals or Deer Hunter?

[Eric Ludwig:]

Yeah, so Racing Rivals plus Kim Kardashian will be 28%, total guided revenue to 2016.

[Michael Olson:]

And what did you say the top two games were as a percent of revenue in 2014?

[Eric Ludwig:]

Yeah, was 52%. So really showing the diversifications of a growing absolute revenue by being more diversified in the funnel itself.

[Michael Olson:]

Great, thanks a lot.

[Niccolo de Masi:]

Thanks Mike.

[Operator:]

Thank you. Our next question comes from the like of Michael Graham of Cannacord Genuity. Your line is open, please go ahead.

[Michael Graham:]

Thanks and congrats guys on the really great performance. I wonder if you could comment on how you are thinking about the cash balance that you are have, is that what just for later you have been backing off of taking about acquisitions a quarter or two ago, I am just wondering how you are thinking about how the company has different strategic options now but you have that cash? And then Eric, I just wanted to ask about any commentary you can provide around the linearity of the Kim Kardashian revenue. I thought the way that 237,000 in bookings a day, just wondering if you can give us any feel for like how that was at the beginning of the quarter versus the end and maybe if you care us how it’s doing so far this quarter? Thanks.

[Niccolo de Masi:]

Well, obviously I’d like to say that most of the $190 million pro forma balance sheet is going towards management bonuses but that fairly not the case. You know I reiterate what I said in prepared remarks, which is ultimately this is about a bigger cushion, bigger balance sheet, aqua-hirer, celebrity deals and possibly select acquisitions but we’re going to continue to be very jovially on that. We’re not about to rush out and spend the money bidding the price up anywhere both ourselves and Tencent who is not a largest shareholder, our conservative long term as thinking. And Glus is obviously come along way, right. In the last five years particularly we’ve grown consistently year-in year-out, 38% year-on-year growth. We want to continue marching the growth forward and being value conscious. So when markets for acquisitions that you are pricing, we’ll look at aqua-hires, we’ll look at potentially just straight hiring in a lot of cases. And you’ve heard us add 14s this year in a considerable number of net hires, we are in the market overall particular in the San Francisco gaming industry sector, geography when we call it, we are one of the largest net hires, maybe one of the net hires in the mobile gaming space out of sort of super 100% level this year. We do believe as this in the last call if there is a lot of organic potential in our celebrity platform and I mentioned 10 or 15 ago that we are going to of course by looking that games, more tailored for China games, more tailored for Japan, you know specific markets maybe even Russia. There are markets big enough, so we can just start to getting on using our development, using our expertise in the ground without having the build only games. But the first and foremost priority will be building global games even global games because get a better bank for book on that. Beyond that there isn’t much more I’ll say other than, we do believe that we were and are have still one of the smaller balance sheet if you compare us to Zynga, King et cetera. But as we become a bigger business and we have aspiration and where our growth will trend out the next three to five years, we increasing want to make sure that we have a robust general corporate purposes strengthen balance sheet. So you know one should be anticipating that all this that we spent in one place and Christmas will come early et cetera. So moreover what you’ve seen guys is a general way of thinking about how we are going to spend our cash and frankly think about acquisitions and any mixture of cash and stock that would be conservative would still be applied for any acquisition if we found one.

[Eric Ludwig:]

Yeah, great and Mike on the second question about Kim Kardashian, I won’t go into overall details but Kim in Q4 did $29.3 million, this quarter she did $21.3 million. So obviously there was an overall downward slopping trend as we would expect these single players as titles. That being said, our development has been very, very good at weaving in updates and content, we’ve been cameos within the game itself. So if you look at the ranking charts from week to week, they go up and down based on cameos. But the overall trend was net-net down given this is a single player game is not connected.

[Michael Graham:]

Okay, alright, thanks a lot.

[Niccolo de Masi:]

Thank you, Mike.

[Operator:]

Thank you. Our next question comes from the line of Sean McGowan of Needham & Company. Your line is open, please go ahead.

[Sean McGowan:]

Yeah, thanks a lot. Congrats. You hear me okay?

[Niccolo de Masi:]

Yes, a little choppy but right away.

[Sean McGowan:]

I am in hotel somewhere. And couple of question regarding the change in this, performance in the quarter is well as a changing guidance, so where is - can you be more specific about where the revenue upside coming from relative your expectations, you know what titles grow there and how would you take that?

[Eric Ludwig:]

Yeah. Sure, Sean. So I don’t really breakout what my guidance assumptions where but given we only had one title launch in the quarter Eternity Warriors. You can imagine that virtually all of the outperformance came from our titles have already rely before we enter the quarter. And then particular there were three big standouts plus one new prior title that launched in Q4. So Kim, Deer Hunter and Racing Rivals all these titles had much longer, bigger at sate tails than we were expecting when we did the guidance. That’s kind of point number one. Point number two Contract Killer

[Sean McGowan:]

Then I think you have stated, it sounds like when you give a guidance, you are anticipating your rate of a tail like Kim conservatively kind of how many better than was toward fitting your guidance, would you - anything as a fair assessment?

[Eric Ludwig:]

We’ve certainly said we absolutely don’t want to miss the lot of the guidance and we really stride to beat the high end of guidance, that’s kind of been our state of philosophy. So certainly when we are preparing our guidance, we have two things; we got titles that are either already relay or we have on launch titles. Obviously the bigger variability happens when you have titles launching in the quarter that are not yet live and then we have to take some additional haircut on what we think that title can do or have conservative guidance around what that title can or cannot contribute in the quarter. So those are the variables that play into our guidance that in philosophy.

[Sean McGowan:]

Okay, and then regarding the variants on the titles are pretty big increased all lies in revenue guidance, no change in the EBITDA. Can you be more specific about where the costs are going to be higher and how to that channel be?

[Eric Ludwig:]

Yeah. Sure. So we can talk about in my prepared remarks about what one that were obviously more revenue so therefore more variable marketing. We did talk last quarter about some incremental themes and we’re expanding some of those themes even further. I’ll provide more details on that at the Analyst Day. And then thirdly, I did say specifically we’ve got one user acquisition channels that we’re not talking about the Kim Kardashian

[Sean McGowan:]

So is the variable marketing have to go up if revenues goes up, is like that, is that the deal or you just expect more because you though you can get more?

[Eric Ludwig:]

Yeah, I mean if you go to the last slide of our Investor Relations deck, we’ve got a one of our key metric slide that shows what our variable marketing as a percentage of revenue. It’s a pretty tight range between call 13% and 16% of revenue, really kind of welding in at about 15%. So there’s been in peak the 20%. A long time ago, there’s been at 13% and that’s usually around quarters when we have lots of launches i.e. more spend or fewer launches i.e. less spend. But overall, we are trying to target roughly that 15%. And I think lastly would be if we’ve got a title that has a much higher lifetime value than it cost to acquire users on a CPI basis, that’s a view that I will. In that scenario, you can a spending more but it’s really, on the long term it’s all like positive but in the short term that can possible be a bit of forward on that.

[Sean McGowan:]

Okay and then the last question kind of technical question on the shareholder agreement with Tencent, are there any rights that you have to future purchases. First if you got an acquisition that come along with this?

[Eric Ludwig:]

Yes, Sean, we filed an 8-K for the earnings call that outlined all the details on the Tencent investment. So as I said in my prepared remarks 12.5 million the share repurchased immediately another 8.5 will be purchased in the next 30 days, that gets into roughly I think we say Investor deck about 14.6% of the full share outstanding. Tencent has the rights and the ability on the open market to purchase up to 25% in total of the outstanding number of share. So at the March 31st share count holding number that would be about another 11.2 shares that Tencent could purchase if they choose and purchase on the open market. Ones and if they do hit that 25%, Glu and Tencent have agreed with eight year standstill agreement, so they could not buy any more share beyond 25% and Glu’s board agreed releasing them that obligation. Yes, Tencent if they chose the side to do so, could be and maybe active buyers in the open market if they chose to make that decision. They obviously now our board member and insider, so such future purchases would be subject to blackout rules inside our trained rules but also reporting rules. They will have to file Form 4s within two business days of any such purchases.

[Niccolo de Masi:]

But they don’t any right - they have no rights with regards to future placements for cash or there is no anti-dilution like that. They are standard shareholder like everybody else. If they want to by Neil’s Market they can, we simply kept their ability to grow their shareholding incrementally.

[Sean McGowan:]

Great, okay, thanks. That’s very helpful. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Mitch Bartlett of Craig Hallum. Your line is open, please go ahead.

[Unidentified Analyst:]

Hi guys, this is Joe down for Mitch. Just a few questions, first on the Chinese market, I am wondering if you could remind me what percent of your revenues come from China. And then just broadly on the market itself, how big is there where kind of growth, any kind of data around the market would be helpful?

[Niccolo de Masi:]

Sure. There’s lots of third party sources on this. We disclosed in our IR deck today that we had about 14% of revenue coming from Asia-Pac in the quarter in Q1. China is the lion share of that, Japan is very small. So China is always traditionally been our second biggest market typically. Sometimes third, become the second biggest market. We’ve always had a big presence in China. I think one of the unique things about the Tencent Glu potentially operating synergies is that fact that we understand each other pretty well. We understand how to be successful in China. We are - I’ve always said that we are probably the most extensible foreign or American gaming company in China standalone. So we’ve done a partnership before like the one that we intend to do with Tencent on operating level. We’ve always published our games ourselves 100%. And ultimately, we’ve always localized. We’ve collateralized culturalized some extent, we’ve build games like Eternity Warriors one, two and three. That as a franchise have done well in China and Korea. And we’ve certainly benefited from the growth in China. I meaning standing back from it, Google has always made a good chunk of our revenue internationally as our North America. Even 10 years ago that was the case. And so where believer is there is also 2 billion smartphones in the world today. The next billion or 2 billion they are often going to be - it’s not often, predominately will be coming from the emerging markets. So Asia-Pac, Greater China, Southeast Asia and obviously Africa, South America these are all markets that can still grow a long way and grow to good cliff. The Chinese market has grown phenomenally quickly. So I think Apple have great porosity for that. So obviously they disclosed a lot about their device sales and just had earnings call a day or two ago. And you can see that they have predicted, Tim Cook put at Apple becoming I think their biggest market by 2020 or something like that. We feel the same way which is China and the U.S. are going to be our top two market, they already were. But we seeing there is an opportunity for China to catch up and be a lot close to U.S. even though we will continue grow in the U.S. as a total share. And as I said one of the first calls, a lot of that growth can come out of the Android phone in China. We are very strong on Google Play outside of China because Google operates centralized Android store in most markets. But in China, they don’t operate. And so it’s a fragment ecosystem where arguably the biggest single channel is Tencent. Tencent streaming business, I think anecdotally there about a 50% of market share of the entire gaming ecosystem in China, mobile, online, PC you name it and they growing rapidly themselves on mobile platform. So if you look at Tencent, all you see that they’ve grown their online game business quickly, they have grown their mobile gaming business quickly. And the numbers are putting up in China domestically are very impressive. So tapping into a market that I think is growing undoubtedly faster on percentage terms than most of other markets but also has scale is what makes this really, really exciting. And we still have people that don’t have smartphones in China, a good number don’t have smartphones. But there is ability to ship a game in China that can make a $100 million a year of revenue, it’s that larger market on its own on the mobile platform and in some cases larger than that. There are - there is online games in China doing $0.5 billion, maybe even a $1 billion of total consumer revenue is possible across the overall online mobile ecosystem in China. I would even - I recommend you to look at the third party reports who is going to want to start selling myself.

[Unidentified Analyst:]

Okay, if I could follow-up on one question just about what you ended with there. Is this Zonra [ph] are the most popular games there. I mean as your expertise, I understand that the distribution is a lot different there but are there Zonra is a lot - the popular zonra is a lot different?

[Eric Ludwig:]

Yeah, so the Apple system is actually the same, that’s not a lot different we view very well sample. There is no doubt there is a culture taste difference. However, Google’s actions and our shooters have always done well in Korea and China. And even in 2010, when we shipped Gun Brothers that a top 10 browsing game in the U.S. and Korea and China even in English as soon as the App stores have opened. So our style of game have certainly performed well there on the action front. Of all the game we make are action RPGs specifically things like Eternity Warriors do well there. We’re doing a number of movie titles this year and obviously movies they travel internationally well like the James Bond franchise like we believe obviously things like the Terminator franchise. We believe that Hollywood has seen its growth at box office internationally and China is a big driver of that. And the taste making there is similar to what we think we work in the game space. So overall, I think more action probably but at the same time you need to culturalize and drive games that not only have simplified addition Chinese done well and we’ve done that well. We have native translators. But you also tailor your social graph, and your social competitive features for the local market and that’s where the Tencent potential offering partnership will be about as using their social graph integrating that into our social competitive feature and making that a lot more native and that’s where we can get a lot of that list from our games locally.

[Unidentified Analyst:]

Very helpful, thanks.

[Operator:]

Thank you. The next question comes from the line Mike Hickey of the Benchmark Company. Your line is open, please go ahead.

[Mike Hickey:]

Hey Niccolo and Eric, great quarter guys, congratulation. Obviously you’ve had a lot of success here with KK and your pipeline is doing nicely with additional some of the IP, congrats on the Britney deal. Could you speak maybe to the competitive environment that you are looking at now for related IP, there’s been few games already but do you anticipate on that, that’s - related games and do you see the competitive environment back in your licensing fees? Thank you and I have one more follow-up.

[Niccolo de Masi:]

Yeah, I mean, we haven’t terms any of these deal so far. What I will say is we have an unparallel demonstration of our ability to pioneer partnership and also monetize it, right. So our Kim game is obviously critically claims commercially successful. That I’ll point for everyone is like we were not the first, there was probably two dozen, one to two dozen celebrity games before us. It’s not about being first, it’s about being best. And Google has today the number of one grossing celebrity game. It was a top ten, top five grossing game a long term. The second place game, I think the like 880 grossing. So the choice for partners in the celebrity space is do you want to work with someone who knows how to ship a top five, top five grossing celebrity game or do you want to roll the dice and work with someone that might ship you at top 500 grossing game. And at the end of the day, that’s a powerful message because we know how to work with those schedules, we know how to work well with the management team. We have a whole orchestration. On outside of your organization built around, doing a good job of this and patterning authentically. So we’re finding that out ability constantly deals continues on abided. We have a strong pipeline, the terms of which of course I would never disclose. Other than saying you know you’ve seen our royalty percentages are not moving up and the share of revenues been paid, royalties is under 10% in Q1 and was 9.7 or so. So we expect that to continue on for us to be one. We’re going to face the amount or going to make sure we have differentiation of engines. But I believe this is an evergreen idea. We will use very different mechanics to make sure we differentiate in tailor for each individual celebrities in trend based and unique brand. But Hollywood celebrities have been going a long time, I mean it’s maybe a 100 years current information but the Greek enrollments has around - so this is not a new idea, this a 2,000 year old idea, maybe it’s a 100,000 old idea. And we like low concept evergreen idea at Glu, right. Shooting like, shooting deer, that’s an old idea, that works pretty well. Shooting peoples are pretty old idea, that works pretty well. And partnering with celebrities to promote games as well as build mechanics that tap into their frozen and our fan basis I believe we will work for every, it’s simple are going to be a case of finding the right talent that has a name, recognition has, social following has the right engine set. Google is a business is built around a portfolio of team, talents to your product alignment, we specialize. We are specializing even within celebrity now, so there will be dedicated teams and studios for each of our partners and we have to believe our people. So there will be, they have been other celebrity games, there will be other celebrity games, we are out of - maybe to be only person, but we do believe we can continue to pioneer, can continue to be the best not only critically but the best monetize.

[Mike Hickey:]

Thanks enough Niccolo. Thanks for your answer. Even I have potential memory lapse here, but as it relates to your Deer Hunter slots game, is just the game or is it something else and it’s a social category where you intent potentially map additional resources particularly it’s been leverage your celebrity portfolio? Thanks.

[Niccolo de Masi:]

We didn’t actually build that. The other falls game is a kind of test or experiment, it’s not one of the launches of the year, it’s more of a call it UA or marketing test to see how it can potentially transfer 100% original IP into other demographics, but that’s not the unannounced titled and we’ll be talking more about our roadmap on the May 14th Analyst Day then we will announce the each one and it’s now tow more titles and flush out the roadmap. But certainly you are right, I mean we think a portfolio on the celebrity gaming side, Hollywood platform, there is obviously more that we could do in the long term to cross pollinate to build different multiple celebrities honor a game. All of this could be done down a line. But right now we are in the first inning, we are in the first act of the celebrity gaming platform and then we think we can run a long way still making headline top tier main branded celebrity games before we need to start looking at the more of a universe approach so to speak.

[Mike Hickey:]

Alright guys that’s a lot.

[Niccolo de Masi:]

Thank you.

[Operator:]

Thank our. Our next question comes from the line of Adam Krejcik of Eilers Research. Your line is open, please go ahead.

[Adam Krejcik:]

Hi guys, thanks for taking my questions. Just a couple of quick ones, on this celebrity deals, are there any stipulations in terms of the types of games that can or cannot be made for example, somewhat way to follow-up to what Fred was asking like if you wanted to do a Britney Spears slots game or racing game, not say that you would, are you allowed to do that or is there a certain amount of kind of negotiations that go back and forth with these celebrities. I know you guys won’t disclose the exact details of all these games but conceivably can you see kind of multiple different types of celebrities across many different genres of games? And then I have another question. Thanks.

[Eric Ludwig:]

Hey now, I mean for sure, when I say we are looking at different mechanics, different engines. We are talking about different genres of games. I obviously think that you need to match the demographic of the fan base with an engine of works. So being at the ballet, Britney Spears, the sniper game is probably not a fit between her fan base and brand and gaming, potential gaming demographic. So - but why did you do that, you can multiple mechanics we believe and be successful. And remember the key thing here is we are striking exclusive partnerships for a long period of time. The Britney partnership is up to eight years, five to eight years. So we’ll be undoubtedly to an eight period more than one game. How we move this honors and mechanics and how we evolve those in the timing of the launches, that’s very much to be worked out. But I think the length of time of which we are partnering with Katy Perry, Kim, Kendall, Kylie, it’s really a recognition of the fact that we are going to maximize critical of playing commercial success with them in gaming ecosystem, multiplatform. And we are going to do that together, so of course those approval languages throughout these partnerships on both sides. But nevertheless, we’re working together in good faith as exclusive partners. And I believe that these brands will work for decades frankly, when you have a 100 million or more social followers, you are going to be a brand in 10 years, it is patently untrue. Anybody who things that Kim Kardashian and he is not going to be popular in three or four, five years, if you signed a new deal with E, the biggest one ever that the history of the entertainment whether it’s movies, TV, books periodical game, it is that the big get bigger on average. The bond franchises bigger today than 50 years ago, it had box office record with Sky Fall. It will be bigger in five year, ten years time. We believe that’s true with celebrities and their lifestyle brand, that’s where we are tapping into here. Britney has been going 15 years, 18 years and so on in the line light putting our consistent success, expanding her brand. We are unique way to monetize her, interest in her as a person as well as interest in her brand. And no doubt that we can use our partnership with her to expand not only amongst the casual demographic, but also to try and bring new people into gaming that have never played a game before. That’s really the opposite opportunity here for Glue. It’s get people play a celebrity game who don’t consider himself gamer and might never have played a game other than perhaps seen a relative of those play a game and that’s very much how we are expanding the market for Glu and also being a player and garnering greater and greater market share. Is there a follow-up question?

[Adam Krejcik:]

Yeah, thanks for that the detail explanation. Bigger picture thinking about EBITDA and kind of the underlying profitability, how are you kind of weighing revenue growth as we look to 2016, 2017 with EBITDA, margins are down this here. Is the focus going to turn to profitability? And you I can’t remember but a few years back, you guys had a slide that said kind of targeted 20% EBITDA margins that maturity, there was timeline. I know the company looks lot different now than it did then but. Is there any kind of long term guidance that you think ones you get to certain scale that underlying profitability you can achieve? Thanks.

[Niccolo de Masi:]

Yeah, so only two things I’ll say on that on this call are; one, we are going to walk through the long term model and pretty gory detail on the May 14th Analyst Day and one of this not be primary purpose of having an in-depth seminar with myself, Eric and our senior management team is to make sure and understand the levers and drivers. I mean we’ve always delivered a 37.8% CAGR the last five years, despite having a $65 million plus feature phone business running off to zero. So this underlying smartphone revenue business is growing at quite a healthy clip. We obviously believe that we can continue on the growth trajectory. What I said on the last earnings call is that we are balancing top line growth and investment in additional teams, additional capabilities. So we are not maximizing EBITDA the cost of revenue growth, we are also not growing revenue and trying to optimize that and limiting EBITDA, right. So there is a healthy balance between the two. Exactly what that balance is in the ranges although, we’ll walk through that all the detail in 15 days or so.

[Adam Krejcik:]

I appreciate it. Thank you, guys.

[Operator:]

Thank you. And that does conclude our question-and-answer period. I would like to turn the conference back over to management for any closing remarks.

[Niccolo de Masi:]

Well, I want to close by thanking my colleagues for their efforts and our stockholders for their continued support. We are extremely pleased with our outperformance in Q1, our strategic relationship with Tencent and the unique Hollywood platform we are building at Glu. We look forward to 2015 and beyond with confidence. Thank you again for joining the call.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program. You may all disconnect. Have a great rest of your day.