'Zumba Fitness' Maker Majesco Hits the Wall

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ZumbaMajesco Entertainment (COOL) isn't living up to its ticker symbol.

Shares of the video game developer and publisher got crushed on Tuesday after the company posted disappointing quarterly results.

After three blowout quarters, fiscal 2011 came to a close with a whimper. Revenue inched 8% higher in the final period, a far cry from the 66% growth spurt that Majesco mustered for the entire year. More important, the company behind the Zumba Fitness and Cooking Mama gaming franchises posted a widening deficit of $0.07 a share. After it kicked off the year with three robustly profitable quarters, analysts were holding out for earnings of $0.04 a share.

An Unwelcome Surprise

One of the easiest ways to find winning stocks is to stick with companies that routinely blast through Wall Street's profit targets. Until this week's implosion, that was Majesco.

EPS est.
EPS
Beat
Q1 2011
$0.11
$0.20
82%
Q2 2011
$0.07
$0.13
86%
Q3 2011
($0.02)
$0.03
250%
Q4 2011
$0.04
($0.07)
(275%)
Source: Capital IQ.

What went wrong? Zumba Fitness continues to sell briskly on all three video game consoles. Zumba Fitness 2 -- which came out on the Wii shortly after the end of Majesco's fiscal fourth quarter -- has already sold a million units.

Majesco points out that Zumba Fitness 2 hit the million-unit mark ahead of the original a year earlier. The strong start and a healthy slate of releases scheduled for this year would seem to make fiscal 2012 another year of heady growth.

Unfortunately, Majesco's outlook isn't that aggressive. After posting $125.3 million in revenue this past year, the small gaming company is targeting $125 million to $140 million in revenue. After delivering adjusted net income of $0.28 a share in fiscal 2011, Majesco's guidance calls for profitability on that basis to clock in between $0.25 and $0.35 a share. There's a lack of growth on the low end of the range, and only a modest uptick on the high end.

Blame the Industry

Media tracker NPD Group's data for December wasn't encouraging at all. Industry sales fell 21%, as retail sales of new software suffered a 14% decline.

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We can argue that NPD's data is incomplete. It doesn't track online sales, app downloads, and other digital downloads. However, the news sent shares of leading video-game maker Activision Blizzard (ATVI) and retailer GameStop (GME) lower.
Majesco is lucky in retrospect. Its stock more than tripled during the 2011 calendar year. Its new fitness franchise is making the most of the growing popularity of motion-based controls that make workout titles more attractive.

However, you can only disappoint Wall Street once. Majesco will have to get back on track, hoping that it can grow its existing franchises or launch another sleeper hit this year. If Majesco wants to be worthy of its ticker symbol again, it's just what it will have to do.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of GameStop and Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard and writing covered calls in GameStop. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard.



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