Will Mad Catz Rise After Stumbling in the First Quarter?

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Video game peripherals manufacturer Mad Catz Interactive (ASE: MCZ) reported weaker than expected first-quarter earnings, hurt by tepid demand for its products, and its share plunged 34% to trade below $1.

Let's take a look at what's holding the company back.

Into the numbers
Revenue for the quarter dropped 17.3% to $16.5 million from $19.9 million a year ago. Sales were hurt by fall in demand of gaming products, termination of a third-party distribution agreement, and low demand in Europe. Rising costs also affected the profitability of the company.

Although sales declined, selling, general, and administrative costs went up by almost $1 million. Research and development expenses rose by $1 million as the company spent on product development and bolstering its distribution mechanism. The company reported an operating loss of $4.9 million, hurt by these costs.

A look at the books
Low sales resulted in a quarterly loss, and this is reflected in the cash generated from operations, which has dropped to a -$5.8 million. In the wake of low sales and fragile operating margins, the company's ability to assume more debt for expansion purposes is under a cloud of uncertainty for the time being.

Light at the end of the tunnel
There's some light at the end of the tunnel, though. Mad Catz provides peripherals for gaming consoles manufactured by Sony (NYS: SNE) and Microsoft (NAS: MSFT) . Hence, its sales are somewhat dependent on the number of units sold by these companies. With sales of the Xbox 360 surging and Mad Catz being the exclusive provider of headphones for the Xbox, the company may see a bright summer next year.

Moreover, the global gaming industry is expected to be as big as $68.3 billion in 2012, and Mad Catz is also expected to reap benefits from this growth.

Fool's take
With sales of gaming consoles on the rise, it is expected that the company's performance will pick up later in the year. For the time being, we need to wait till the next quarterly results to see whether any progress has been made.

To stay up to speed on Mad Catz, click here to add it to My Watchlist.

At the time this article was published Harsh Chauhan doesn't own any shares in the companies mentioned in this article.The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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