Small Cap Video Game Stocks: Dying With the Industry? THQI, TTWO & COOL

The Yahoo homepage recently ran a headline asking if the video game industry dying, meaning investors might want to take a closer look at the health of small cap video game stocks like THQ (NASDAQ: THQI), Take-Two Interactive Software (NASDAQ: TTWO) and Majesco Entertainment (NASDAQ: COOL). Specifically, the article noted that retail sales are down 27% compared to the same time in 2011 while mobile devices are also stealing the spotlight away from traditional consoles. Moreover, the economic downturn seems to be continuing – meaning consumers don’t have the money for fancy new hardware even if gaming developers had new hardware to debut. So how healthy are small cap video game stocks THQ (THQI), Take-Two Interactive Software (TTWO) and Majesco Entertainment (COOL)? Here is a closer look to help you decide:

THQ (NASDAQ: THQI) Has Plenty of Problems

THQ is a worldwide developer and publisher of interactive entertainment software and it develops its products for all popular game systems, personal computers and wireless devices. On Friday, THQ fell 1.79% to $0.648 (THQI has a 52 week trading range of $0.45 to $4.24 a share) for a market cap of $44.34 million plus the stock is down 14.7% since the start of the year, down 84.3% over the past year and down 98.1% over the past five years. However and as of noon today, it was surging nearly 10%. It should be noted that back in January, Nasdaq threatened to delist THQ and laid off 240 employees, slashed the CEO's salary by 50% and got rid of its children's licensed games division. THQ is planning a reverse split to solve its delisting problem with Nasdaq but for its fiscal fourth quarter, the company slipped into a larger loss thanks to a weak market, intensifying competition and restructuring. Moreover, analysts seem to believe that THQ will face a tough road ahead despite its efforts to cut costs.

Take-Two Interactive Software (NASDAQ: TTWO) Likes to Bet on Homeruns

Take-Two Interactive Software is a developer, marketer and publisher of interactive entertainment for consumers through its two wholly-owned labels: Rockstar Games and 2K. Investors should note that in an industry where companies often miss initial launch dates, Take-Two Interactive Software has apparently made missing launch dates a rule of thumb – much to the annoyance of investors. Moreover, it appears that the company like to bet on homeruns – a business strategy that can easily backfire as it did last quarter. Specifically and for the last fiscal fourth quarter, Take-Two Interactive Software saw its fourth-quarter net loss more than tripled ($66.8 million verses $22.1 million) thanks to a fall in revenue and a failure to repeat the success of "Red Dead Redemption" from a year ago. Revenue also ended up falling 19% from $182.2 million a year ago to $148.1 million. On Friday, Take-Two Interactive Software fell 3.99% to $11.06 (TTWO has a 52 week trading range of $10.63 to $16.99 a share) for a market cap of $994.04 million plus the stock is down 18.4% since the start of the year, down 31.6% over the past year and down 46.9% over the past five years.

Majesco Entertainment (NASDAQ: COOL) Rose Nearly 5% on Friday

Majesco Entertainment develops video games for the mass market with a specific focus on developing and publishing a wide range of casual and family oriented titles on leading console and portable systems. On Friday, Majesco Entertainment rose 4.95% to $2.12 (COOL has a 52 week trading range of $1.61 to $4.53 a share) for a market cap of $87.7 million is down 13.1% since the start of the year, down 30.9% over the past year and up 35% over the past five years. Apparently, the rise was due to new deal with Sanrio, the owner of the Hello Kitty brand, for the release of "hello Kitty Picnic with Sanrio Friends" for the Holiday 2012 season. However and back in March, Majesco Entertainment sank after giving a disappointing profit prediction for the current quarter. Specifically and while Majesco Entertainment’s revenue rose 37% to $66.2 million from $48.5 million and that the holiday shopping season were "strong" thanks to heavy demand for its "Zumba Fitness 2" game for the Nintendo Wii, sales were offset by higher costs that included a doubling of the company's software development costs plus license fees to $19.3 million. Nevertheless, analysts predict that Majesco Entertainment could have strong revenue thanks to Zumba games but the company will still need to diversify its product lineup in order to increase profits.

The Bottom Line. Of these three small cap video game stocks, Majesco Entertainment (COOL) seems to be less risky than THQ (THQI) and Take-Two Interactive Software (TTWO) but that’s not necessarily saying much.