Majesco Reported Strong Quarter

Majesco, a leading game publisher, announced a strong quarter ending January 31, 2008 with sales up 29% to $18.7 million and a net profit of $2.7 million, up from a net loss of $900,000 a year ago. This dramatic turnaround followed the company’s strategic shift two years ago from large-budget console games to lower-cost “value and handheld video games,” primarily for Nintendo Wii and DS. After reading this news, a few points came to my mind:

1. From a financial perspective, casual style games for Nintendo DS and Wii represent lucrative opportunities for game publishers as they are made on smaller budgets and sold for a premium. I accompanied my friend to BestBuy a few weeks ago. He bought Big Brain Academy for Wii (a very casual game) at about $50 and Call of Duty 4 for PS3 at about $60. Which one do you think have a higher profit margin? No wonder gross margin for Majesco in Q1 increased to 40%, up from 31.1 percent a year ago, as the majority of the sales from either Nintendo Wii or DS.
2. If I ran a small game studio with limited resources, I would seriously consider a niche strategy catering to Nintendo Wii and DS. At the current stage, besides a few exceptions such as Guitar Hero and Cooking Mama franchises, most of the top sellers on Nintendo Wii and DS remain first-party. I believe any third-party publishers able to make breakthroughs with Nintendo will reap benefits.
3. Casual games are sweeping the industry and we predicted that. RealNetworks, a leading casual games publisher on the PC platform, grew its casual game business to $108.5 million in 2007, a 26% increase from 2006. We are right on target with our forecast. In the Casual Gaming Market Update report we published in 2007, we forecasted a 29% revenue growth of the industry in 2007, driven by a number of factors: 1) expanded user base; 2) diversification of business models to include retail, advertising, subscription, micro-transaction; 3) porting of games to multiple screens such as PC, mobile and TV.
   

Coming back to Majesco, although it regained its financial health and established a franchise that is able to bring steady cash flows, I believe they can be even more successful on Nintendo Wii by finding the next casual hit and scouting interesting PC casual titles that can be ported to the console front.