In researching THQ's second quarter outlook, I see something that I think might be difficult for most analysts to figure out:

"Despite much lower net sales, we expect our operating loss to improve versus the $53.5 million operating loss reported in our fiscal 2009 second quarter due to lower product costs as a percentage of net sales and the cost savings from our business realignment. However, given that we are using a 15% tax rate versus a 41% rate last year, we expect to realize a much smaller tax benefit this year. As a result, we expect a greater net loss compared with last year's results."

In other words, non-GAAP net loss is expected to be worse than the -.46 posted last second quarter.  Analysts have it at -.47, which sounds generous considering THQ has not given a more concrete figure except for a tax rate that I wouldn't know what to do with.  I see that THQ realized an 80M tax benefit last year, so apparently that was based on a 41% tax rate.

The company had this to say about expected earnings:

"Looking forward to the 2010 fiscal second quarter, we expect to report net sales in the range of $85 million to $95 million, down from $152 million a year ago, based on no new titles scheduled for release in Q2 and an unfavorable year over year comparison for Up versus WALLE. We also expect fiscal 2010 second quarter catalog sales to be lower than last year."

So around 90M earnings will produce -.47 eps according to analysts - or a 31.5M loss while THQ says expect operating loss to be better than 53.5M loss.  I find that in the first quarter of Q1, THQ had a 29M deferred tax liability and a 63M deferred tax asset that both changed to zero in the following quarter along with a new 7.5M deferred tax asset , when they realized the 80.5M tax benefit.  That doesn't add up, so there's something hidden there that I cannot understand.  Fast forward to their recent quarter and they have 6.9M in current deferred tax assets and about 2M in long term deferred tax assets and no deferred tax liabilities.  That's a big difference from last year and at least suggests that the possible tax benefit in Q2 should be much more limited, as THQ has already stated.

If they really do only around 90M revenue, I don't see how their loss could only be 31.5M.  In their lowest reporting Q this year ending in March (170M revenue), their develepment and SG&A alone were 63M.  Cost of revenue was above revenue in that same period (185M).  Analysts seem to be putting together a best case scenario in reaching their current estimates.  They expect around 125M in total expenses after adjusting for the tax benefit.  If the tax benefit is only 5M, for example, then they expect 130M total expenses.  That's R&D and SG&A of lets say 55M and 75M COGs, or around a 20% gross profit.  More likely the analysts expect that tax benefit to be bigger than it probably will be.

THQ's guidance only tells us that operating loss will be better than 53.5M and net loss will be better than 31.5M, leaving us to search for a tax benefit number.  I believe that tax benefit will be less than 10M, which suggests a net loss somewhere in between those numbers, rather than being at the edge of the best case number.  A 40M loss would be more like an eps loss of around -.60 so I would say that unless THQ plans to beat that revenue number in a big way, expect a Q2 miss of analyst estimates.