Majesco Entertainment Earnings: What You Need to Know After the Bell

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

Majesco (NASDAQ:COOL) will report Q4:12 (ending October) results after the market close today with a conference call at 1:30pm PT (dial-in:  800-860-2442, webcast:

We expect Q4 results in line with our revised estimates, which are now below the low end of implied guidance. We expect Q4 revenue of $22 million and EPS of $0.01, below our prior estimates of $27 million and $0.05, consensus of $25 million and $0.04, and implied guidance of $24-34 million and $0.03-0.13. We note that Majesco’s NPD U.S. retail dollar sales tracked down 43% y-o-y in the October quarter,  well below the range implied by guidance (down 5% to up 35%), from disappointing debuts for Harley Pasternak’s Hollywood Workout, NBA Baller Beats, and  Zumba Fitness Core, among other titles, and sluggish catalog sales resulting from the declining popularity of Nintendo hardware. Our revised revenue estimate reflects only a 12% y-o-y decline, well above sell-through results implied by NPD, due to solid Zumba sell-in.

We expect Majesco to guide to positive revenue and EPS growth in FY:13. Although Q4:12 should prove to be a disappointment, management guides for EPS growth from Zumba re-orders, upcoming releases (American Idol and Phineas and Ferb), digital, mobile, and social growth and recent…

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studio closings. However, we have lowered our FY:13 estimates for revenue to $135 million from $145 million and for EPS to $0.25 from $0.30 primarily to reflect an unclear release slate.

Heavy dependence on  Zumba Fitness and the  Mama games continues to make the stock somewhat risky. Given the precipitous drop in sales experienced by the Wii and music games in recent years, and the faddish nature of different fitness regimens, we believe that the company must continue to focus on developing additional top-tier franchises in addition to increasing the number of Zumba Fitness releases year after year. If  Zumba sales fall off unexpectedly, Majesco is unlikely to show positive growth in FY:13.

Maintaining our NEUTRAL rating, but lowering our price target to $2.50 from $3.  Our price target reflects a forward multiple of 10x our revised FY:13 EPS estimate of $0.25. It is below Majesco’s expected normalized growth rate to reflect a worsening outlook for key franchise Zumba Fitness, an unclear release slate, and the declining popularity of Nintendo hardware devices.

Michael Pachter is an analyst at Wedbush Securities. 

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