Friday, May 11, 2007

MCZ announces Halo license deal

The company today announced a new multi-year license deal with Halo 3, the next
installation in one of the most popular console games of all time, and arguably the
most lucrative license the company has acquired to date. The previous 2 versions of
halo have sold 14.7 million copies. Halo 3 is expected to launch near the end of the
year (should be madcatz q3). I currently have calls out to try and assess the terms
and breadth of the deal in more detail, but overall view this as a strong catalyst
to the gross margins story in the write up. I've also done a conservative back of
the envelope on the value of the deal, which I have outlined below:

Total Unit estimate:
Avg copies sold per halo iteration: 7.3M
% of customers buying faceplates: 5%
avg faceplates per customer: 1.1
Estimated unit sales: 400,000

Gross margin per unit
average MSRP: $22 (based on gears of war pricing)
average MCZ wholesale (guestimate): $15
average MCZ gross margin (guestimate): 50%
Profit per unit: $7.50

Estimated impact (revenue, profit):
at 5% adoption: ($6M, $3M)

Because all other operating expenses are largely fixed, the additional GM would largely fall to the bottom line, after taxes, resulting in about $2M in net income. This would translate into an additional EPS of about $.04, which I expect would largely come in q3 and q4 of this fiscal year. I
also believe this may help the company secure future deals, including the lucrative GTA license.

I am still optimistic on the gross margins story here, and believe soon to be reported q4 numbers (and, in particular, the gross margin number), will help give further indication of the profit potential going into next fiscal year.

No comments: