DEEP STOCK ANALYSIS: Majesco Entertainment Earnings Preview

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

Majesco (NASDAQ:COOL) will report Q3:12 (ending July) results after the market close on Monday, September 10, with a conference call at 1:30pm PT (dial-in: 800-860-2442, webcast: ir.majescoentertainment.com).

Expecting in-line Q3 results. We expect Q3 results in line with our estimates for revenue of $13 million, compared to consensus of $14 million, and EPS of $(0.04), in line with consensus. Majesco did not provide quarterly guidance. Its NPD U.S. retail dollar sales tracked down 42% in the July quarter, below our revenue growth estimate of down 33%. We believe Majesco can meet our revenue estimate through international sales and, to a lesser extent, sell-in of Q4 releases.

We expect the company to maintain FY:12 guidance for revenue of $130-140 million and EPS of $0.20-0.30 assuming that Q3 results are in line.

Publishing agreement with Zynga to have limited Q3  mpact. On June 26, Majesco announced Zynga would publish Mini Putt Park on Facebook and Zynga’s website. However, given the game’s modest number of MAUs (150,000, according to AppData as of the time of writing), the game is unlikely to materially impact Q3 results.

Heavy dependence on Zumba Fitness and the Mama games makes the stock somewhat risky. Although Majesco’s upcoming release slate features a handful of notable titles, it is unclear which of the new non-Zumba titles will prove popular with consumers. In addition, the long-term staying power of  Zumba games remains unclear, as the fitness program could prove to be a fad. If Zumba Fitness sales fall unexpectedly, Majesco could struggle to achieve FY:12 revenue guidance that implies 4% annual growth at the low end and 12% growth at the high end.

Harley Pasternak’s Hollywood Workout and NBA Baller Beats must bothovercome obstacles to achieve long-term popularity. The first obstacle will be review scores. The Harley game will also have to win over discerning fitness gamers, who eventually passed on Jillian Michaels games. We question the market potential of NBA Baller Beats given issues related to bouncing a real ball indoors.

Maintaining our NEUTRAL rating and 12-month price target of $4, which reflects a forward multiple of ≈ 9x our FY:13 EPS estimate of $0.43. This is below Majesco’s expected normalized growth rate to reflect uneven growth.

Michael Pachter is an analyst at Wedbush Securities.