Hopes are running high at THQ Inc (NASDAQ:THQI). That's because hope is all they can count on at this point.
MX vs. ATV, a product being released on four consoles is coming next week without significant fanfare, according to Amazon bestseller charts and others. The racing genre as a whole has been underperforming in the past year, as seen recently with Electronic Arts (ERTS) Need for Speed titles, Microsoft's Forza Motorsports and Take Two (TTWO) Interactive's Midnight Club, which all sold below what was expected in their launch months. In January, THQ plans to release Darksiders, which is tracking as poorly as a wannabe blockbuster new release can possibly track on bestseller lists.
THQ got a major lift this year from the release of its UFC title, which beat expectations and became the top selling game in its launch month. THQ plans to release this game every year, a strategy that raises some eyebrows. That's because, unlike other sports titles that have significant player trades and statistics changes every year, UFC is largely the same year after year. Electronic Arts, which releases Fight Night, chooses to release their fight title every 2-3 years, and will also release a mixed martial arts title of their own. But THQ is unfazed and will try to milk it for all that it's worth. It's very questionable if sequels will be able to match its first year sales, which had years of pent up demand from gamers for a quality mixed martial arts title.
Moving on, THQ recently signed a long term extension with WWE, the titles THQ is best known for. Yet, this year's release in late October has turned out to be another disappointment, as WWE games continue to fall in sales each year. The kids have discovered Nintendo games in the last few years, and WWE game quality is not seeing significant improvement, according to critics.
Meanwhile, THQ is cutting staff and closing off growth potential it may have had before. That's because they want to survive.
Buyout potential? It's important to note that THQ, unlike the other big publishers, does not own the developer of its two most important products, UFC and WWE. It also obviously does not own the licenses for those products. Realizing this value problem late in the game, CEO Brian Farrell decided to shift THQ's focus onto mature properties like Red Faction, Darksiders, MX v. ATV, and Saints Row. So you can call THQ a rookie among the other publishers as far as the mature gaming business, considering their main focus was licensed children's titles up to around 2005. Aside from the initial UFC success this year, their release of Red Faction likely did not yield enough sales to even make an operating profit. And here comes Darksiders to save the day - currently ranking at around #1,000 on Amazon.
Investors ought to be cautious about analyst growth expectations for THQ. They expect around 23 million in earnings in fiscal year 2011, which doesn't sound like much. But this is a company that managed to lose over 100 million last year and is fighting to make a small profit this year, with the UFC sales carrying THQ on its back. Darksiders will wrap up the fiscal year and investors will again have to hope that THQ internal expectations are low. With press releases like these coming well over one month before launch, I wouldn't count on it.
Disclosure: no position in THQ (long TTWO)
