Majesco Off to ‘Strong Start’ in Q4, But Downgrades Forecast

Majesco Entertainment’s Q4 “is off to a strong start” due to new releases, including Babysitting Mama for the Wii and Zumba Fitness, CEO Jesse Sutton said on an earnings call late Tuesday. While it’s “still early,” he said “initial demand from our retail partners” for those two titles is “shaping up well.” But Sutton said Majesco is “disappointed” that it had to lower its fiscal year results forecast after slightly delaying the releases of all three SKUs of Zumba Fitness and the PS3 version of Greg Hastings Paintball 2 from fiscal 2010 ending Oct. 31 until early fiscal 2011. Crafting Mama also won’t be released until the final week of fiscal 2010, interim Chief Financial Officer Michael Vesey said.

Zumba Fitness was originally planned for a late October launch. Vesey said a “mid-November” launch will “be better aligned with the Microsoft Kinect launch window,” and Majesco opted to release all three SKUs at the same time. While PlayStation Move is launching this week, Kinect won’t launch until Nov. 4. Paintball 2 was originally planned as a September PS3 release, but Majesco decided to instead launch the game “in early 2011 as a downloadable title for the PlayStation Network,” Vesey said. As a result, Q4 “will be weighted less to new releases” and some revenue and earnings will shift to fiscal 2011, the company said.

Majesco expects to report about $77 million-$80 million revenue for fiscal 2010, down from its prior estimate of $80 million. It also expects to post earnings per share of 1-3 cents, down from its earlier forecast of 5 cents, still an improvement over the 15 cent loss in fiscal 2009, Majesco said.

Zumba Fitness will be released for Sony’s new PlayStation Move control system on the PS3 and Microsoft’s new Kinect for Xbox 360 controller-less motion-sensing system, as well as the Wii. Babysitting Mama, which will ship with a plush doll at “a healthy $49.99 price point,” will be backed by “a strong marketing campaign and retail merchandising programs,” Sutton said.

Majesco expects to release a total of about 25 SKUs in fiscal 2010, including 11 DS and 12 Wii games, seven of them in Q4. It expects that about 63 percent of revenue will come from DS titles, compared to 33 percent from Wii titles and 4 percent from all other platforms. Sutton said that will shift next year as Majesco splits its focus between multiple platforms, including the PS3 and Xbox 360 via the new control systems and downloadable games.

Q3 revenue tumbled 29 percent to $12.2 million from a year earlier. The drop was “consistent with our internal expectations,” Sutton said. The loss narrowed to $1.6 million, 4 cents a share, from $5.2 million, or 12 cents. The revenue decline was “almost entirely due to a lighter release slate” than Q3 last year, Sutton said. Majesco’s “only significant new release” this time was Tetris Party Deluxe, compared to last year’s releases of Night at the Museum: Battle of the Smithsonian in Q3, “continued strength” of Gardening Mama and 11 other DS and Wii releases, he said.

Majesco continued to control costs in Q3, Sutton said. Operating expenses fell 42 percent in Q3 from a year earlier, “largely due to the closure of” Majesco’s in-house development studio and staff cuts made early this year, he said.

The Kinect and PlayStation Move initiatives “reflect the common sense within the industry consistent with our strategic focus that the great opportunity ahead continues to be offering quality entertainment experiences to the growing demographics in gaming,” Sutton said. The Microsoft and Sony initiatives are “an affirmation of the general strategy” that Majesco has pursued, he said.

Majesco is “extremely excited about” the Nintendo 3DS handheld system expected to launch in North America early next year, Sutton said. He predicted that the system “will be another huge hit for Nintendo, building on the success of the original DS, which has now sold over 120 million units of hardware.” Majesco plans “to be there on day one to support it,” he said. DS sales “have been somewhat sluggish as of late,” but Majesco believes the 3DS “will usher in a robust upgrade cycle and be a meaningful catalyst for the handheld market, which should be beneficial to Majesco as well,” he said. In 2011, the company will back the 3DS with its “biggest and best brands, as well as some new IPs which will take full advantage of the 3D screen and camera,” he said.

Game makers “can’t really” just “port” games from one new game system to another, Sutton said. “Everything has to be created from scratch to build a new and unique experience for those individual platforms, and that’s what we intend on bringing to the consumer.” The cost of developing games for the new hardware systems is “going to be no different” from the trend the company has seen throughout the current hardware cycle, he said. Majesco’s Wii games have tended to cost $500,000-$1.5 million to develop, while DS games have tended to cost $250,000-$700,000 on “the rare high end,” he said.

Majesco has various new digital initiatives under way, Sutton said. It’s “aggressively targeting all of the new emerging digital platforms, from Xbox Live and PlayStation Network to Facebook and iPhone” and plans “to build this digital business substantially in 2011 and 2012,” he said. The company has released several games for Xbox Live, Wii Virtual Console, DSiware and iPhone in 2010, he said. The releases represented a shift away from the DS and Wii focus that Majesco had much of the console cycle. Majesco will release Serious Sam: The Second Encounter on Xbox Live Arcade in Q4 and has other digital titles for Facebook and iPhone “due out before the end of the year,” Sutton said.

Majesco had $10.5 million in cash as of July 31 and an additional $1.4 million available under a factoring arrangement, Vesey said. In Q4, it expects to use “a significant” amount of its cash and “available liquidity to purchase inventory related to our holiday releases,” he said. The company has “taken advances under our factoring agreement” of $5.8 million, he said.