Equity Analysis-GONNELLA

Equity Analysis: GLUUANTONIO GONNELLA

GENERAL SUMMARY: GLUU

i. Based in California

ii. Market Cap: $547M

iii. Current price: $4.90

iv. Average Volume: 2.6M

v. Traded on Nasdaq

vi. 2014 Revenue: $223.15 M

vii. 2015 Revenue (expected): $260 M

INDUSTRY

Venturebeat.com

Size:2013 – $17.5 B2017 – $35.4 B

INDUSTRY - Continue

Monetization Ranking

Revenue:

1. Asia Pacific – $12.2B

2. USA – $4.9B

3. Western Europe – $3.2B

Average Spend/month:

4. USA - $6.21

5. Western Europe - $4.59

6. Asia Pacific - $4.17

INDUSTRY - game line up

GLUU – 5 YEAR FINANCIAL PERFORMANCE

GLUU – 5 YEAR Free Cash Flow

Used % average to forecast future cash flow% of revenue

GLUU Game performance

Most popular game performance over releases Hardest part? Estimating Decay rate for games

GLUU – Game performance, Celebrity

2015 Celebrity gamesKaty PerryKendall and Kylie Jenner

2016 Celebrity gameFill 106.3M social reach gapMost likely sports star

GLUU Present Value using DCF1. Calculate Beta

2. Market risk premium

3. Calculate WACC

4. Forecast 5-YEAR celebrity games’ revenue ◦ Based on past performance◦ Based on social reach ratio◦ Based on decay ratio

5. Forecast future FCF◦ Based on %sales ratios

6. Compute Present value

GLUU - Beta Regression line:

Beta=2.37 (B_Historical)

Beta tends to return to mean (B=1):

Beta (B) = B_Historical*0.65+0.35= 1.89

Market risk premium

GLUU - WACC

Rf = risk free rate, 2.53% based on 10 year T-Bond average yield for 2014

Rd = 0

Re = Rf + Beta*(Rm-Rf)

WACC = 7.7%

GLUU – 5 YEAR celebrity games’ sales

1. KP AND KKJ same Rev/Social reach ratio as KKw◦ For 1st (0.56) and 2nd (0.4) quarter after release◦ After 2nd quarter apply 27.5% decay ratio

2. 400M social reach by 2016

3. Bold numbers and highlighted cells◦ Estimated release quarter for big upgrade or new version

4. Each game is growing at 10% over prior release

NOTE:1. sales numbers used for future FCF is from celebrity games only

2. GLUU will be releasing sports, racing, shooter games along with celebrity games◦ Deer Hunter◦ Tap Sports Football and baseball◦ Eternity Warriors 4◦ Car town◦ 007

3. Non celebrity games could add anything between 70M-140M to 2015 revenue

GLUU - Present Value

GLUU - Present Value

NO DEBT

97M Shares

2% Rev growth after 2019

WACC = 7.7%

10% celebrity game growth

NO DEBT

97M Shares

2% Rev growth after 2019

WACC = 7.7%

0% celebrity game growth

GLUU - Present Value

NO DEBT

97M Shares

2% Rev growth after 2019

WACC = 7.7%

-25% celebrity game growth

Growth was calculated based on today’s share price

GLUU - Present Value

GLUU Price/Sales ratio GLUU P/S ration 29% undervalued

GLUU fair value to be on par with industry: $6.3

GLUU – Price Target $6.3 to be on par with industry $12.9 based on celebrity games’ sales ONLY, and 10% growth $9.8 based on celebrity games’ sales ONLY, and 0% growth

My price target $11.3 0% growth for celebrity games Estimating an annual revenue of $70M from other games 130% upside

GLUU - Risk1. KP and KKJ games don’t do as well as KKw

2. GLUU doesn’t not reach 400M social reach by 2016

3. Mobile games market slows down

4. Celebrity games saturation

If above assumptions occur

5. Price target changed to $6.3 to be on par with P/S industry average1. 29% upside potential

QUESTIONS?