Majesco Entertainment Company Earnings Outlook

Majesco Entertainment (NASDAQ:COOL) will report Q1:12 (ending January) results after the market close on Monday, March 12, with a conference call at 1:30pm PT (dial-in: 800-860-2442, webcast:

Expecting in-line Q1. We expect Q1 results in-line with our estimates for revenue of $62 million and EPS of $0.22, compared with consensus for revenue of $55 million and EPS of $0.20. It did not provide quarterly guidance. Majesco’s  NPD U.S. retail dollar sales tracked down 6% in Q1, below our revenue growth estimate of up 28%. We believe Majesco can meet our revenue estimate through increased international sales and sell-in for Zumba Fitness Rush (February release).

We expect the company to maintain FY:12 guidance for revenue of $125 – 140 million, and EPS of $0.25 – 0.35. We will initiate our FY:13 estimates once the company has provided greater clarity around its release slate beyond Q1:12.

Majesco remains dependent on Zumba Fitness (≈ 70% of sales in FY:11 and FY:12). In January, Majesco announced that Zumba Fitness 2 had sold over one million units worldwide, with Zumba franchise sales totaling over six million units. Zumba Fitness (11/2010),  Zumba Fitness 2 (11/2011),  Zumba Fitness Rush (2/2012), and another  Zumba title (holiday 2012) will be the key drivers of the company’s success. The popularity of other releases is unclear, however, reflected in Q4:11’s $2.7 million impairment charge. In addition, the long-term popularity of Zumba is not assured, as the fitness program could be a fad. If Zumba sales fall unexpectedly, Majesco could struggle to achieve FY:12 guidance.

The majority of the industry’s top-selling console games are high budget and high definition, unlike Zumba. The success of lower budget and lower resolution exercise and dance games will be difficult to maintain as gamer expectations increase. Also, with Wii U’s 2012 release, development budgets will likely increase.

Maintaining our NEUTRAL rating and 12-month price target of $4, which reflects a forward multiple of 11x our FY:12 EPS estimate of $0.35. This is below Majesco’s expected normalized growth rate to reflect uneven growth.

Michael Pachter is an analyst at Wedbush Morgan.

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