Majesco Entertainment: Here’s What Investors Should Do

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.  

Investment Thesis: We recommend that investors take a wait-and-see approach before accumulating Majesco (NASDAQ:COOL) shares due to slowing Zumba sales, a thin release slate of games, and disappointing guidance. Although we continue to believe that the company is one hit game away from significant appreciation beyond its current share price, it is not clear that such a game is included in its pipeline.

Q1 performance roughly in line with expectations. Revenue was $23 million (down 65% y-o-y), compared with our estimate of $25 million, and consensus of $29 million. The y-o-y decline was driven by lower Zumba sales on the Wii (due in large part to release timing) and lower revenues from new releases on 3DS and Kinect. Non-GAAP EPS was $(0.02), compared with our estimate of $(0.02), consensus of $(0.03), and guidance of between a modest loss and break-even.

Limited guidance from unclear release slate. Majesco maintained FY:13 guidance for revenue significantly below FY:12 and a non-GAAP EPS loss, with noQ2:13 guidance. Due to its sparse release slate at this point in time, we know little about the company’s plans to address decline of the Wii and the releases of the next-gen consoles…