Majesco Entertainment Shares Are Too Cheap With Strong Holiday Lineup

| About: PolarityTE, Inc. (COOL)
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Small video game maker Majesco Entertainment (NASDAQ:COOL) reported third quarter earnings (earnings call) on Monday. The company behind the Zumba Fitness franchise saw its shares unchanged at $1.78. Shares are close to their fifty two week low and represent a good buying opportunity at this level before a strong and exciting holiday season.

Majesco Entertainment reported net sales of $9.1 million. This was a significant drop from last year's third quarter ($19.5 million). International sales made up 22% of the total with $2 million. In last year's third quarter, the company saw $5.3 million in international sales, representing 27% of sales. Part of the decline in revenue was due to a change in the timing of release of Zumba titles in Europe. The large number from last year's third quarter was also impacted by strong sales of Zumba Fitness games on Nintendo Wii. Gross margins also shrunk to 38%, from 41% in last year's third quarter.

The company spent a high amount of money on research and marketing for its future slate of games. Majesco spent over $500,000 on the pre-launch of "NBA Baller Beats". Another $150,000 was used towards the cost of cancelled games. Majesco spent another $1.1 million during the quarter on the development of mobile and social games.

Today marks the release of Majesco's newest game "NBA Baller Beats". The game is for Microsoft Kinect and features realistic gameplay with a real Spalding basketball. The game has won several awards and gained buzz at basketball camps throughout this summer. Back in April, I pointed out that strong sales of the game could help diversify the company away from its Zumba franchise. Strong sales could lead to a NBA franchise and could also lead Majesco into motion games for other sports. The game retails for $59.99 and comes with a Spalding basketball. Over four million people have watched trailers for the game and 700 thousand currently follow the game on Twitter.

Last week, Majesco released "Mini Putt Park" on Facebook and (NASDAQ:ZNGA). As of today, the game has 120,000 monthly users on Facebook. Over 16,000 people also like the game on Facebook. The game was part of a partnership announced with Zynga back in June. At the time of the announcement shares shot up to $1.97 as Zynga released Majesco as a partner during an investor presentation. I praised the announcement in a June article and think it was the start of several games being launched on Facebook from Majesco.

The Zumba Fitness franchise has sold more than 8 million copies around the world. The gaming franchise represented 79% of sales in the third quarter. The company's next big release after "NBA Baller Beats" is "Zumba Fitness Core". The game will come out for the Nintendo Wii and XBOX 360 on October 16th.

Along with large fourth quarter releases of "NBA Baller Beats" and "Zumba Fitness Core", the company will be releasing two freemium titles for smartphones and iPads to further its expansion into mobile games. The company will package several bestselling "Cooking Mama" games for the holidays. Another new release from Majesco Entertainment will be a "Hello Kitty" videogame. A new video game series featuring Hollywood trainer Harley Pasternak is set to release on September 18th and could become a franchise for the company.

Majesco is now guiding to hit the lower end of its previous full year guidance of $130-$140 million in net sales. The company is guiding for earnings per share to come in a range of $0.20 to $0.30 for the full fiscal year. Analysts on Yahoo Finance see the company earning $0.27 for the full fiscal year from $139.03 million in net sales. With the company guiding for lower revenue and earnings, analysts appear to be too optimistic on the company.

I remain extremely optimistic for Majesco Entertainment heading into the holiday season. The shares are priced for all their games to be failures. The new NBA game may not prove as successful as the company is forecasting. Even with a miss from any of the titles, the Zumba Fitness Core game is sure to sell well for the holidays and focuses on a specific body area that is demanded by millions of people around the World. I have been a shareholder of Majesco for over a year and am looking at adding to my position at these levels.

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.