Investors Call Majesco's Quarter Un-COOL

Video game publisher Majesco Entertainment (Nasdaq: COOL) this week reported increased annual revenues and a return to net profit for fiscal 2011, but increased marketing costs and a tepid outlook had investors selling.

After having a decent year in 2011 when revenues and profits climbed and the stock doubled, the company is off to a bad start in 2012. Majesco’s 2011 fiscal report and outlook for 2012 soured investors taste for games. The company’s shares have plunged 30 percent this week after earnings were announced on Tuesday evening.

Majesco shares remained tepid on Friday, trading near $2. It's been a volatile stock, with a 52-week range of $1 to $4.50. The company will have to work hard to see a return on its ambitious promotional plans; the video game market is highly competitive, and consumers can be fickle about spending money in this climate.

Majesco is not a huge publisher like Electronics Arts Inc. (Nasdaq: EA) or Take-Two Interactive Software Inc. (Nasdaq: TTWO), which release, respectively, big budget "Star Wars" and "Grand Theft Auto" video games. However, Majesco has found a niche for itself with casual and fitness-themed titles.

Majesco's "Zumba Fitness" video game -- inspired by the dance-style workout regimen -- helped increase the firm's revenues to $125.3 million with net income of $6.8 million for the fiscal year ended October 31, 2011. That compares with $75.7 million in revenue and net loss of $972,000 for fiscal 2010.

Majesco launched "Zumba Fitness" for multiple consoles in November 2010, then released "Zumba Fitness 2" for the Nintendo Wii last November. Next month, it plans to release "Zumba Fitness Rush" for Microsoft's (Nasdaq: MSFT) Xbox 360 motion-sensing Kinect platform.

"We believe the Zumba brand is in its early stages of development," said Jesse Sutton, CEO of Majesco, during a conference call on Tuesday to discuss the company's earnings.

While the Zumba series has assumed a prominent place on the balance sheet, the company puts out a variety of other titles. Majesco publishes the long-running "Cooking Mama" game series, where players must cook meals, as well as other fitness games such as "Jillian Michaels' Fitness Ultimatum 2010." Zumba, however, has quickly become a mainstay for the company.

"Our revenues were 70% Zumba and 30% for Mama and other titles for fiscal 2011," Majesco's CFO, Michael Vesey, said during the earnings call. He said the company expects similar revenue distribution for fiscal 2012.

Christina Glorioso, CMO for Majesco, said the company plans to push the upcoming installment in the Zumba game series with a marketing campaign across television, print, and social media, as well as with the network of instructors who teach Zumba classes. "The February launch of [Zumba] Rush is the company's largest integrated marketing program to date," she said.

Marketing costs have been on the rise in recent years at Majesco. The company reported $14.7 million in total selling and marketing expenses for fiscal 2011, compared with $8.4 million for fiscal 2010.

Majesco acknowledged that video game sales, much like other industries, can be affected by the whims of the economy. In the early and mid-2000s, Majesco tried its hand at publishing premium titles. The company attracted attention when it launched its "BloodRayne" action game series and related media featuring the deadly half-vampire heroine. Comic books and movies have been made about the character. But some of the company's efforts to expand on the video game landscape left it a bit bruised.

Majesco named Carl Yankowski, former CEO of Palm Inc., as chairman and CEO in 2004, and a push was on to release more premium titles. However, sci-fi action game "Advent Rising," which included dialogue written by bestselling author Orson Scott Card, proved costly for the company. "Advent Rising" suffered from technical bugs and met with varied responses from the gaming community. The planned trilogy of games ended with the first installment. Yankowski resigned in 2005, and Majesco refocused on casual games.

Majesco's current effort to push "Zumba Rush" may be its big play for 2012, but there are other titles in the works. The company has a partnership with the National Basketball Association to publish a motion-based game due later this year, though no details have been released. And with heavy marketing planned for "Zumba Rush," Majesco is hoping to dance its way to dollars.