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Cooling Down With Majesco Entertainment

|Includes: COOL-OLD, Nintendo Co., Ltd. ADR (NTDOY)

In my first article first article about Majesco Entertainment (COOL) I was thrilled about motion-controlled games. The greatness of motion controlled gaming is that it is immersive, entertaining and, above all else, fun. Personally I am still waiting for a great sword game where you can fight as a real knight with a sword in your hands. Majesco is the right company to bring this game to millions of wannabe knights.

Majesco's Q3 results were quite disappointing, so I sold my shares with a 12 cent loss and will wait for a better entry point. The poor results are blamed on seasonality and "challenging retail conditions for interactive entertainment." Wii game sales (61% of total) fell 60% year-over-year to $5.5 million. Majesco now expects FQ4 results to be "in the lower end" of a revenue guidance range of $130 million - $140 million and an EPS range of $0.20-$0.30.

Personally I found those excuses weak, maybe because I am not familiar with the gaming business. A brilliant investor would say "invest in what you know". I knew the financials and I thought I could predict the future, but I guess I was wrong this time.

I already mentioned in my former article that the company is depending too much on their Zumba Fitness franchise. Sales of Zumba products accounted for approximately 79% of Majesco's sales during the 9-month period compared with 70% a year ago. Depending on such small number of "hit" titles attracts competitors that could develop something similar or better and take away sales or reduce the ability to get a premium price.

If their latest releases NBA Baller Beats and Mini Putt Park can turn the coin the coming quarters the stock price could run to levels of $1.75 again, but for now I am looking for a new entrance at $1. The technical picture looks very weak, so we will see what happens the coming months.

Composite Indicators Signal
Get Chart Get Performance TrendSpotter     Sell
Short Term Indicators  
Get Chart Get Performance 7 Day Average Directional Indicator     Sell
Get Chart Get Performance 10 - 8 Day Moving Average Hilo Channel     Sell
Get Chart Get Performance 20 Day Moving Average vs Price     Sell
Get Chart Get Performance 20 - 50 Day MACD Oscillator     Sell
Get Chart Get Performance 20 Day Bollinger Bands     Sell
Short Term Indicators Average: 100% Sell
20-Day Average Volume - 258,771
Medium Term Indicators  
Get Chart Get Performance 40 Day Commodity Channel Index     Sell
Get Chart Get Performance 50 Day Moving Average vs Price     Sell
Get Chart Get Performance 20 - 100 Day MACD Oscillator     Sell
Get Chart Get Performance 50 Day Parabolic Time/Price     Sell
Medium Term Indicators Average: 100% Sell
50-Day Average Volume - 201,320
Long Term Indicators  
Get Chart Get Performance 60 Day Commodity Channel Index     Sell
Get Chart Get Performance 100 Day Moving Average vs Price     Sell
Get Chart Get Performance 50 - 100 Day MACD Oscillator     Sell
Long Term Indicators Average: 100% Sell
100-Day Average Volume - 274,314
Overall Average: 100% Sell
Price Support Pivot Point Resistance
1.36 1.46 1.56 1.66

Detailed Opinion as of Monday, Sep 17th, 2012


Final Note

Last week, NBA Baller Beats was launched as the first-ever full body motion-based NBA licensed video game that lets you perform like a pro using a real basketball. At Amazon it received already some good reviews. I think this game could become a "hit" title too, just like their Zumba Fitness franchise.

The holiday period will be crucial for the company's future, especially because Nintendo's "Wii U" will hit US store shelves on November 18 and aims to lure gamers back from the internet and mobile devices.

The Wii U will allow users to make personal TV and video programming lists and record shows through TiVo and other digital recording services.

For Nintendo, known for its game-centric approach, adding an entertainment component is a positive step, said Billy Pidgeon, an analyst at M2 Research. "It's a must-have right now and with this, they can catch up somewhat to Microsoft's Xbox offerings."

The Wii U is the first console machine to be sold by a major gaming industry company in more than six years. With a new Microsoft Xbox and updated Sony Playstation expected in 2013, sales will offer clues as to whether more advanced, next-generation game hardware can boost the ailing video game console and packaged games market.

The Wii has been a bonanza for Nintendo (OTCPK:NTDOY), with 100 million sold, but demand is waning. In the three months to June 30, Wii sales more than halved to 710,000 from 1.56 million a year earlier.

For Majesco Entertainment the last quarter of 2012 and the year 2013 are important because it could lead to unexpected high growth numbers if gaming fans start to embrace the video game console market again.

The company's current line-up of interesting new games such as NBA Baller Beats could bring renewed interest in the stock again. If sales succeed expectations investors are going to jump on the bandwagon again.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.