Glu Mobile IPO Could Stick It to EA

But Glu's offering price values the company at 8 times revenue, compared with the price-to-sales ratio of 5 at Electronic Arts.

Like many video-game makers, Glu relies on licenses from well-known names for many of its popular brands. Of its top-five selling games, four -- Monopoly, Sonic the Hedgehog, World Series of Poker Texas Hold'em and Who Wants to Be a Millionaire use licensed content. The fifth, Super KO Boxing, was developed in-house.

Such easily recognized brands are good for the top line. Glu's revenue grew 80% last year to $46.2 million after more than tripling in 2005. But it can add up further down the income statement. In 2006, Glu's gross margin was 67.8%, up significantly from 50% a year earlier.

Overall, 88% of Glu's revenue last year involved licensed brands, up from 81% in 2005. Such brands are especially useful in winning a spot on the tiny mobile-phone screens. Glu is marketing its games to 1 billion subscribers through 150 wireless carriers.

But it comes with its share of risks: Bigger companies like EA have their own libraries of titles they don't have to pay royalties on and pre-existing relationships with other brand owners. And those licenses tend to last between two and five years.

Licenses that expire this year made up 53% of Glu's revenue in 2006. Renewing them won't be a sure thing: Just last week, Driver Mobile ended its contract with Glu in favor of rival Gameloft. Ubisoft is also releasing Driver games for the PC and Wii.