Over the last three months, shares of once-promising video game maker Majesco Entertainment (NASDAQ:COOL) have fallen below the $1 mark and been unable to recover. A poor first-quarter earnings and soft outlook for fiscal 2013 could spell doom for the company, or could offer a buying opportunity for shareholders.
On Tuesday, Majesco reported first-quarter revenue of $23.5, falling short of the $28.7 million projected by analysts on Yahoo Finance. This also marked a 65% decrease from the prior year's $66.2 million. The quarter was hurt by soft sales of Nintendo platform games. All video games on Nintendo saw a 44% decrease this holiday season (from NPD Group). Earnings per share were a loss of $0.02, a large drop from the prior year's positive $0.18. This earnings loss actually beat analysts' estimates by a penny.
Due to the soft first-quarter earnings, Majesco has now said it will release fewer titles during the fiscal year, and also expects to post a loss for the year. The company will release "Monster High: Skultimate Roller Maze" for Nintendo 3DS in the second quarter. Later on in the year the company will also release "Young Justice: Legacy" for Xbox 360, Playstation 3 and WiiU, "Phineas and Ferb," and the newest game in the "Zumba Fitness" library. The company will provide an updated release schedule soon. The company will mainly focus on strong brands and low risk games like those with Disney ties and the Zumba brand.
Shares of Majesco traded sharply down in after-hours trading yesterday to $0.58. The company's current market capitalization is actually less than the current cash position ($26.8 million). Majesco also remains free of any long-term debt.
The video game industry has not been kind to the smaller companies. THQI and other small studios saw bankruptcies earlier this year due to declining revenues and failure to pay loans. The benefit Majesco has here is its cash position and debt-free balance sheet. I will become more worried when the company begins to take out loans or depletes its cash position. Chief Executive Officer Jesse Sutton echoed my thoughts during the conference call, saying the following: "With cash of approximately $27 million and no debt, we have the financial flexibility to prepare the company for a resumption of growth as the market for next generation consoles develops."
The company projecting a loss shouldn't come as a huge surprise for investors. Analysts on Yahoo Finance project the company to post a loss of $0.15 for the fiscal year on $77.5 million in revenue. In 2014, prospects appear brighter, as analysts are calling for a return to profitability and $0.08 in earnings per share.
I'll admit that I am a shareholder and plan on sticking around until 2014. The company has made its way through the industry for 20 years, and I think it can survive this rough year. Majesco will need a strong 2013 at the E3 Convention, and could also use a boost to gets its shares above a $1 to become Nasdaq-compliant once again. I'm not ready to throw in the towel yet.
Disclosure: I am long COOL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.