Majesco Entertainment: Here’s One Analyst’s Analysis
The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Majesco (NASDAQ:COOL): Large Q4 EPS miss as Zumba sales were insufficient to offset other product costs. Revenue was $27 million, compared with our estimate of $22 million, consensus of $24 million, and implied guidance of $24 – 34 million. Y-o-y revenue growth was driven by Zumba release timing, as Zumba Fitness Core was released in Q4 of FY:12, while Zumba Fitness 2 was released in Q1. Sales were hurt by Wii and Kinect weakness. Non-GAAP EPS was $(0.07), compared with our estimate of $0.01, consensus of $0.02, and implied guidance of $0.03 – 0.13. Profitability was negatively impacted by accelerated amortization of new releases (including NBA Baller Beats) and higher marketing expenses.
Weak guidance for Q1:13 and FY:13. Given the company’s dependence on holiday sales (which were down at least 50% y-o-y), FY:13 revenue is expected to be significantly down from FY:12 levels. In addition, management expects to report Q1:13 non-GAAP EPS of a modest loss to breakeven, and a loss for the full year. Lower EPS expectations reflect high revenue concentration for a declining franchise (Zumba Fitness), with few new franchises to drive growth.
Lowering our FY:13 estimates for revenue to $85 million from $135 million, and EPS to $(0.10) from $0.25 to reflect guidance and a deteriorating outlook…
Heavy dependence on the Zumba Fitness games. Zumba products accounted for ≈ 76% of sales in FY:12, up from 70% a year ago. Although the upcoming release slate features a handful of notable titles on a number of different platforms, it is unclear to us (and management, apparently) which of the new non-Zumba Fitness titles will prove popular with consumers.
We are maintaining our NEUTRAL rating, but lowering our price target to $1. Our revised price target reflects cash of roughly $0.75 per share, and reflects our confidence that the company can once again bounce back, as it has in the past. We will revisit our price target once the performances of Zumba Fitness Core, its new releases, and its cost-reduction efforts have become more apparent in the new year. Although we continue to believe Majesco (NASDAQ:COOL) is one hit game away from significant appreciation beyond its current share price, we remain unconvinced that such a game is included in its pipeline. In addition, Majesco will continue to suffer from the decline of the Wii and the faddish history of many fitness games.
Michael Pachter is an analyst at Wedbush Securities.