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tsanalysis
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No topic for THQ yet

Homefront was a disappointment overall even though it sold decently at launch. It quickly dropped out of the top 20 most played games on XBox Live so it doesn't look like the game's supposed strength - its multiplayer - is keeping players attention. Red Faction Armageddon looks like a major bomb. It barely broke the top 100 on Amazon at its launch (which seemed poorly timed during E3 when gamers focus on the AAA titles being shown probably only reinforced Red Faction's mediocrity). I can't say I have high hopes for THQ's next few releases (UFC Personal Trainer and Warhammer 40k Space Marine) either. I can't really see UFC fans working out to Kinect or Move and I can't really see the Wii Fit/Zumba crowd being attracted to the game either. Warhammer 40k has been a pretty strong license for THQ but not in action/shooting games. THQ recently confirmed that it closed down Kaos Studios and another studio so I am thinking THQI may take some charges in the June quarter related to that and also the poor performance of Red Faction Armageddon.

However I think things start looking up after that. Saints Row, WWE and UFC are THQ's most reliable franchises and THQ will have all three releasing between November and January. I am especially bullish about Saints Row the Third. I liked what I saw of Saints Row at E3 I think there is room for an over-the-top open world game as the GTA franchise has become more serious. This holiday is crowded but I think SR3's over the top silliness can help set it apart.

I am looking at THQ as more of a short term trade on Saints Row 3 but looking further out a major catalyst for THQ in 2012 would appear to be their MMO, Warhammer 40k Dark Millenium Online. I don't expect the game to be a long term success but I think it could be a big draw at release which could give the stock some short term momentum. EA's Warhammer Age of Reckoning sold over 1 million units in its first few weeks and from game sales data at least the Warhammer 40k universe appears more popular in video games than the Warhammer fantasy universe (I am not knowledgeable about Warhammer however so I may be wrong). THQ recently mentioned that by the time Dark Millenium Online releases it will have been in development for seven years. Vigil's Darksiders was well received so although they have no experience in MMOs that gives me a little encouragement. If Dark Millenium Online can sell a similar number of units as Age of Reckoning upon release I think that would be a pretty big deal for THQ.

Thoughts?

darrens
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I've never liked THQ...

...because the success they do have seems to be always based on licensed product. And the problems I have with a dependency on licensed product are:
a) lower margins
b) you don't own the ip so it can be taken away at any point
c) if the licensed "thing" goes out of fashion then that's the end of you.

So, while I have no problem with a publisher having some licensed product "in the mix", I've always felt that this was all THQ had about them.

As you say, their own-ip stuff (like Homefront) has never quite made it.

But I'm really pleased that you mentioned Saints Row: The Third because I've had my own thoughts about it. It's being sent out to die! Yup, I agree with you that the game looks like another interesting take on GTA ("we're not a GTA clone!") but I shake my head in disbelief at the release date.

It's being released smack into the window of death where only the toughest will survive and there's nothing about this game, or its history, to suggest that it can survive amongst Modern Warfare 3, Battlefield 3, Assassin's Creed Revelations and Need for Speed The Run. I've said before (and I think you agree) that this year's release schedule looks the strongest for a while and I just don't see any chance for SR3 to hold its head above water. We've seen it before with Dead Space, Razors Edge (and tons of others that I can't remember off the top of my head) that great games just get overlooked in the Holiday period fight.

So, my thoughts are that THQ have made a big mistake releasing it mid-November and should either have got it out September/October time or waited until Jan/Feb. If this goes up on the hype (and I'm sure SR3 will get some decent if unspectacular reviews) then I think it's a short candidate.

darrens
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I'm still unconvinced about the release window but

here's an interesting preview/interview which is very complementary about SR3.

tsanalysis
tsanalysis's picture
I sold my THQ. Pursuing

I sold my THQ. Pursuing development of games like WWE Brawl seems like a waste to me. I expected Red Faction to do poorly but it seems like it really bombed. And I am starting to worry that you may be correct that Saints Row the Third is being sent to die in an overly crowded release window. The game didn't get much of a boost on Amazon when the pre-order incentives were announced, so that had me a little worried. So even though there doesn't seem like there is much downside left in THQ, there doesn't seem like there is any upside either. I am going to re-evaluate THQ after earnings release and closer to Saints Row release.

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darrens
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Looks like you dodged a bullet

on this one. Absolutely awful earnings report which you had already guessed at and they've taken the full year forecast down too which makes me wonder how much faith they have in SR3. I think they said pre-orders were double SR2 but I'm not sure that level of interest is going to mean much come November. I'm always a little bit dubious of what publishers say about pre-orders anyway.

What do you think now?

tsanalysis
tsanalysis's picture
I was tempted to buy back

I was tempted to buy back this morning but decided to wait. I think that by the time THQ reports their December quarter, the shares will have climbed back and closed the gap at $3.2 created this morning. That would be about a 30% return with downside risk of perhaps 20%. If THQ gets down to around $2.2, that would be about 50% upside with perhaps around 10% downside. At that price I would not hesitate to initiate a position. I still think SR3 will outsell SR2, however I am a little disappointed that management didn't just go ahead and take down revenue guidance for the whole year by around $100 million and get it over with so that there is little doubt they set themselves up to beat later in the year. They said they changed assumptions for WWE and UFC from lower than last iterations to the same or higher, which I think may be aggressive for those franchises. I also do not think uDraw will do well on 360/PS3. If THQ's guidance is resting on uDraw and WWE/UFC as much as it is on SR3, I do not like that. I think the video game stocks and general markets may be entering the doldrums the next few months before picking up again in October/November so I am going to be patient and wait for better entry points. Also a lot of other opportunities are nearing my buy zones so I am kind of waiting to see which will present me the best opportunity.

Also just wanted to add that listening to the call, Farrell sounded in denial and I think has lost all credibility with his talk of commitment to higher quality.

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darrens
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I didn't listen to the call

but if he said that the market is getting more hit-driven and they need to focus on quality rather than quantity then I've been hearing that for about 15 years.

They're now guiding full year earnings from -30c to +10c a share and that, presumably, is based on SR3 being a hit rather than being "sent to die". I'm struggling to see any value in THQ unless SR3 is a big hit and if it does get lost in the Holiday squeeze then that's the year gone for THQ.

I'm not doing anything but if I was hedging vg publishers these would be in my "short" pile. Are you suggesting these as a long play based on SR3?

tsanalysis
tsanalysis's picture
Yes, I think THQ has enough

Yes, I think THQ has enough going for it to make it an attractive long play over the next 6 months or so. I think SR3 could end up selling around 5 million lifetime. I think WWE and UFC will sell about the same as their previous versions. I think uDraw will disappoint. For Fiscal '13 I think management will start to hype up their MMO, Warhammer Dark Millenium Online. I don't think it will be a long term success but I think it could have some initial success. EA's Warhammer Age of Reckoning sold something like 1 million units its first month and from what I have been able to gather the Warhammer 40k universe is more popular than the standard Warhammer Fantasy universe so if Dark Millenium is good (a big if, I know) I think it could enjoy initial success. Vigil produced a good game in Darksiders, so perhaps they can pull it off with Dark Millenium.

Bottom line I think around $2 is the bottom for THQ over the next 12 months. They don't have a need to raise additional cash over that time and I think they have enough in the pipeline to tell a good story at least, providing the hype/hope to move shares back to $3-$4. So the closer THQ gets to $2 the more inclined I am to go long.

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darrens
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Probably going to agree to disagree ont his one

I just see THQ as one of those publishers that hasn't found something that pulled it out of the mire. EA had the sports title, Activision had Tony Hawk, Take Two had GTA. THQ has never quite got beyond the hand to mouth cycle and if you took away the licensed stuff then there's not a lot left.

There may be some trading opportunities with THQ but I see it as the most likely company to disappear in the coming years.

tsanalysis
tsanalysis's picture
I noticed that Warhammer 40k

I noticed that Warhammer 40k Space Marine has been the #2 title in the UK the past two weeks. Has that changed your opinion on THQ at all? You seemed to be OK, albeit not excited, when Call of Jaurez and Driver charted similarly for Ubisoft. You have mentioned that Ubisoft is attractive as a value investment in part because of their market cap (~ $500M USD) and projected sales (~ $1.4B USD). THQ is even cheaper on that basis (~ $120M market cap, projecting ~ $940M in revenue). You mention that take away the licensed stuff from THQ and they never really had enough to get beyond hand-to-mouth existence, yet you mentioned EA had sports titles and Activision had Tony Hawk. Aren't those "licensed stuff"? How are WWE and UFC different from Madden, FIFA or Tony Hawk? And I know you think it is being sent to die, but Saint's Row is one of THQ's biggest selling franchises, it is wholy-owned IP, and THQ has said that preorders are around double what they were for Saints Row 2 (not that that is anything to get excited about, given the increase in console install base since then anything less would be disappointing - but at least it shows SR3 is holding its own thus far).

I don't necessarily disagree with you on THQ (I remain on the sidelines since I sold my position), I am just trying to figure why you seem to give the benefit of the doubt to Ubisoft but not THQ. I also don't necessarily disagree with you that THQ is the most likely to disappear in the coming years, but that doesn't mean it couldn't be an exceptional trade at some point. I mean, I considered Majesco the publisher most likely to disappear next when I bought it but that didn't stop me from buying it big time at $1 when I saw the success of Zumba and what that could mean to earnings in the short term given the company's tiny market cap. Isn't that basically the same reasoning you applied to your investment in GAME? Unless I am mistaken, I do not believe you think that GAME is a great long term investment, you just thought it is not going to disappear right away and in the near term could have a really good holiday period. Are any of the investments we have discussed really any different - whether it is EA because of BF3/SWTOR/Sims Social, TTWO because of GTAV/BI, etc, unless of course we have reason to fear bankruptcy/massive dilution, which I do not think is a fear with THQ.

I consider all stock investments just trades of varying duration based on valuations and fundamentals at any given point in time. I don't think I would really consider any stock - video game publisher or otherwise - a permanent buy and hold.

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darrens
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Funnily enough I was going to

Funnily enough I was going to post about THQ yesterday (before you did) because there have been some positive noises about SR3 but then I had another look at the release schedule around its time of release and just went "naaaah" again.

Perhaps I am wrong but I do see a difference between FIFA, Madden, Tony Hawk and WWE/UFC. I can imagine somebody else making a wrestling game and WWE deciding to award the licence to them. Ditto UFC. Certainly for UFC, arguably for WWE, the games aren't so strong that THQ can be assured of the licence. For the first three (although obviously this is only true for Tony Hawk in its heyday) the balance was more about the quality of the game rather than the strength of the licence.

Now, I don't feel totally entrenched in the position (well, I do for UFC but not for WWE) so if you think that's wrong for WWE then I'm here to be convinced.

With regards to Warhammer then it has taken me somewhat by surprise, which was one of the reasons I was thinking of posting something yesterday. It's just not on my radar but is this franchise stronger than I realised or has this been a surprise hit?

But I guess my over-arching concern about THQ, and why I differentiate between them and Ubisoft, is Assassin's Creed. It's a guaranteed 6m+ seller which stops me worrying about them going bust and guarantees them a certain level of finances.

Also, THQ are forecasting earnings of -30c to +10c eps whereas Ubisoft are forecasting 40c to 60c eps. I know that forecasts are there to be missed/beaten but as things currently stand THQ aren't expecting to make any profit and I don't know what changes for them going forward which will change that. Ubisoft think they will make a decent profit and have already said they expect the year after to be even better.

Now, if SR3 ends up not being lost in the mire then I think THQ are a definite buy. But, as things currently stand I'm expecting it to be sent out to die. Some more pre-release excitement and stellar reviews may change my mind and if SR3 can stand toe to toe with Skyrim, Assassin's Creed, Modern Warfare et al then that could be THQs future secured and a $120m market cap will look like an incredible bargain.

But I need a bit of convincing.

tsanalysis
tsanalysis's picture
Well, I am not going to try

Well, I am not going to try to do any convincing. I am not convinced myself. However, to address some of your points:

1) THQ has both the WWE and UFC licenses locked up until 2018. So no worries there unless you think WWE/UFC would push to end the agreements prematurely.

http://kotaku.com/5432570/settlement-gives-thq-the-wwe-license-until-2018
http://kotaku.com/5667952/thq-puts-ufc-license-into-submission-hold-unti...

2) The WWE games on 360/PS3 (Smackdown Vs. Raw 2008-2011) have ranged between 71 and 81 on Metacritic. The UFC games on 360/PS3 (Undisputed 2009 and 2010) ranged between 83 and 85 on Metacritic. By comparison on 360/PS3 the Madden series has ranged between 74-85, NBA 2k between 81-89, NBA Live between 59-81, FIFA between 75-91, and NHL between 79-88. So I would say that WWE and UFC are right there with the other major sports franchises as far as quality is concerned. And the UFC games have rated higher than the WWE games so I am not sure why you feel more certain for UFC than WWE that the quality isn't strong enough.

3) EA tried releasing a competing mixed martial arts game, EA Sports MMA. The game did not have the UFC license, but licensed other lesser known mixed martial arts leagues the most notable being Strikeforce. On 360/PS3 EA Sports MMA averaged 77-79 on Metacritic compared to that year's WWE which averaged 74-75. Despite a better Metacritic average, EA Sports MMA sold around 45,000 in its first month compared to UFC Undisputed's 413,000:

http://thegarv.com/EA-Sports-MMA-taps-out-at-retail.html

So I would say that is a strong argument in favor of the importance of the license over quality. Furthermore, in March Zuffa (the parent company of UFC) acquired Strikeforce, so that would appear to severely cripple EA's ability to release a sequel to their MMA game:

http://kotaku.com/5815622/ea-sports-wont-say-mmas-dead-but-wont-say-its-...

4) Warhammer has a smaller but passionate following from what I gather. The Warhammer 40k games from THQ have sold over 6 million units with the PC RTS games in the series being the best sellers.

http://www.gamespot.com/xbox360/action/saintsrow2/news.html?sid=6275972&...

There was some doubt whether the Warhammer license would do well in a 3rd person action game, but Space Marine appears to have at least performed decently. EA's Warhammer Age of Reckoning MMO (EA holds the Warhammer fantasy license, THQ holds the Warhammer 40k license which is a different universe) sold 1 million units (although subs fell off very quickly). So that gives me some reason for optimism for THQ's Warhammer 40k Dark Millenium Online MMO (initial sales at least).

5) I agree that Assassin's Creed is far bigger than Saints Row or anything else THQ will have this holiday. Online rankings indicate that Saints Row has nowhere near the hype of Assassin's Creed or the other major holiday releases. I do not expect Saints Row to go toe to toe with Assassin's Creed, Skyrim, Call of Duty, etc, and I do not think it has to for THQ to be a successful trade. I think Saints Row 3 can sell around 5 million units lifetime (compared to Saints Row 2's 3.5 million). Not on par with the big hitters this holiday but it would still make it THQ's best selling release ever, bigger than Homefront or any year's WWE or UFC release.

6) While THQ may not have a title on the level of Assassin's Creed guaranteed to bring in $300 million from 6+ million unit sales this holiday alone, I do not think that financial strength is a concern with THQ in the near term. THQ has over $100 million in cash and no short term debt. THQ's $100 million in convertible debt does not mature until 2014. THQ also appears to have finally closed almost all of their non-performing studios. In the last year alone THQ has reduced its number of studios from 11 to 5. THQ's five remaining internal studios are Volition (Red Faction/Saints Row), Relic (Homeworld, Company of Heroes, Warhammer 40k PC RTS games, Warhammer 40k Space Marine), Vigil (Darksiders, Warhammer 40k MMO), THQ San Diego (WWE Allstars), and THQ Montreal (headed by Patrice Desilets, creative lead on Assassin's Creed I, II, and Brotherhood). With the exception of perhaps THQ San Diego (WWE All Stars averaged 75% on Metacritic but doesn't appear to have sold all that well) that seems like a fairly focused internal developer structure with reason to be optimistic for success.

http://investor.thq.com/phoenix.zhtml?c=96376&p=irol-newsArticle&ID=1594...

7) For THQ's future releases they are partnering with I believe the best talent they have ever done so with. The aforementioned Patrice Desilets (Assassin's Creed, Prince of Persia), Tomonobu Itagaki (Ninja Gaiden, Dead or Alive), Turtle Rock Studios (Left 4 Dead), and just announced today Crytek which is taking over Homefront development.

http://pc.gamespy.com/pc/homefront/1195512p1.html

As I said I am not trying to convince anyone I just thought your overall opinion of THQ was too dismissive of some of the good things they have going on. All that said, I am still not convinced myself yet on THQ. I have a few reservations myself. Such as is THQ doubling down on AAA, original IPs at the wrong time in the console cycle. By the time some of their new games hit it will be very late in 360/PS3's life cycles when it is generally much harder to establish new IPs. I also worry that SWTOR may be the last major MMO capable of being successful with a monthly subscription model, and so by the time THQ gets its Warhammer 40k MMO out it may be too late to the game.

However, for this holiday season, if Saints Row 3 can live up to my expectations, WWE and UFC can sell roughly on par with their previous versions, and uDraw can avoid being a major letdown in its second year, then I still think that THQ shares could experience a 50% or greater rise from current levels. Still, I am debating whether there is enough to jump in ahead of sales results, whether I should wait until seeing some sales results, and if I wait and sales results are good, will THQ already have appreciated too much making it too late to benefit from the trade?

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darrens
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Thanks for the info about the

Thanks for the info about the licences being locked up until 2018, I didn't realise they were so long-dated so that's useful to know. However, I'm not persuaded that WWE or UFC can be mentioned in the same breath as Madden and FIFA - mostly because of the huge disparity of sales.

However, I think we're probably both agreeing that the significant thing (one way or the other) for THQ is Saints Row 3. I guess you're expecting it will do okay and will look for evidence of that and I'm expecting it to crash and burn and will look for evidence of that. But we'll both be avidly looking for evidence one way or the other to know what positions, if any, to take on THQ so in that we are united.

tsanalysis
tsanalysis's picture
Saints Row the Third has been

Saints Row the Third has been making a little bit of a surge on Amazon. The past few days it has even ranked higher than Assassin's Creed Revelations at times (just the 360 sku, on PS3 AC:R is still ahead of SR3). It is interesting to me to watch the rankings of these two games on Amazon, Gamestop, etc, since they both release on the same day. It is not enough for me to go long THQI yet, but I will be watching for any indications of SR3 gaining more momentum heading towards its release.

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darrens
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Every time I think it may be

Every time I think it may be worth buying THQ on the back of SR3 I take a look at the release schedule and just shake my head.

However, if it sells the same as AC:R then it will be an easy trade - short UBI and long THQ.

I guess the thing in SR3's favour is that there's nothing else out like it at the same time and it is a franchise - it's not new ip so there will be SR fans who will buy it regardless.

I'm just struggling to believe that there will be enough money in the gamers' wallets to stretch to this as well as the other games they want to buy.

But worth keeping an eye on because if it does hold its own then THQ are a must buy.

darrens
darrens's picture
InterestedThe first Saints

Interested

The first Saints Row: The Third reviews have been released through the latest issues of Play UK and Australian publication “Hyper”. THQ’s sandbox title performed rather well in both magazines.

Play UK wrote the following about Saints Row: The Third:

“It has its issues, it has its drawbacks, but Saints Row: The Third is an utterly wanton, totally ridiculous bag of laughs. It’s difficult to dislike anyway, and even harder to dislike with such an enjoyable, escalatory campaign. Great stuff.”

Play UK awarded the title an 88%. Hyper’s score was similar, coming in at 9/10.

tsanalysis
tsanalysis's picture
I saw those. If the

I saw those. If the exclusive reviews are around 88-90, then overall the game will probably end up averaging in the low 80s. Not bad. I'm still not seeing the kind of pre-sales indications I would like however. I would have liked to see the game higher on Amazon, Gamestop, Best Buy, Walmart pre-order lists. I am also beginning to think that even if the game is a success (around 4 million unit sales in its first couple months) it will be viewed as a one-off event that won't lend long term support to THQI shares, like what happened with Homefront.

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darrens
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Really? I personally think

Really? I personally think if it sells through 4m+ (without discounting) then that would be great news for THQ and justifies a higher stock price than where it currently sits.

Do you remember how many units SR2 sold through (before it got discounted)? According to VGchartz (which isn't always that reliable but they do tend to retrospectively sort things out) it was 1.5m units in its first 10 weeks so if SR3 could do 4m+ then that would be a big step up for the franchise and it is wholly owned ip which THQ don't have very much of.

However, my concern is that SR3 will just get lost. As you've said in one of the other threads - all the big titles are absolutely nailing it quality wise and we still haven't heard about Skyrim, Modern Warfare 3 and Assassin's Creed but none of those are likely to disappoint with the reviewers so SR3 has a tough, tough job. I maintain that they should have put it out early next year but if it survives in the holiday scrum then I'll be eating my words and, maybe, buying some THQ.

darrens
darrens's picture
In their conference call, THQ

In their conference call, THQ have said that they expect SR3 to ship 3 million in this fiscal year. I think that's a useful reference point to have as we see how things play out. That piques my interest because if SR3 is even a modest success it's going to beat that.

darrens
darrens's picture
Yowser, 9.5/10 from Official

Yowser, 9.5/10 from Official Xbox Magazine!!

http://www.oxmonline.com/saints-row-third-review?page=0,1

tsanalysis
tsanalysis's picture
I think SR3 can ship more

I think SR3 can ship more than 3 million units this fiscal year easily. However THQ also forecast roughly 3 million units each for WWE12, uDraw, and UFC3. I think WWE might do slightly under that, uDraw significantly under that, and UFC under that also. My biggest concern is uDraw. THQ said that last holiday they shipped 1.3 million units just on Wii and just in NA. This holiday they are shipping on Wii, 360, PS3 in both NA and Europe. However, I think uDraw will flop on both 360 and PS3 and even on Wii I think it will sell significantly less than last year. So I think uDraw could sell-through more than million less than they shipping, offsetting some of the overperformance I expect from SR3. So I'm still undecided on THQI.

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darrens
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I didn't realised that they

I didn't realised that they were forecasting 3m for WWE, uDraw and UFC3. WWE should do that but I'd be worried about the other two. Did they give those in a conference call because I must have missed it?

tsanalysis
tsanalysis's picture
Yeah, all that was in the

Yeah, all that was in the conference call. Actually what they said for Saints Row was that Saint's Row 2 shipped 3 million units its first fiscal year and 4.5 million units life to date. For SR3 they said they were expecting to ship "in excess" of 3 million units in this fiscal year. So I was not sure what exactly that meant they had built into their guidance. I guess more than 3 million but less than 4 million units. Regardless I think SR3 could sell-through 3 million units this fiscal year easily and ship-in close to 5 million units this fiscal year.

What they said about WWE12 was that last fiscal year they shipped 3 million units of Smackdown vs Raw 2011 but this since there will be no PS2 SKU they are expecting to ship less than 3 million units.

About uDraw they said last year they shipped 1.3 million units just on Wii in North America. This year they are expecting to ship "less than double" that between Wii, 360, and PS3 in North America and Europe combined. So actually less than 2.6 million units.

And for UFC3 they said UFC 2010 shipped 3 million units and they are expecting to ship less than that for UFC3.

A few other tidbits from the conference call, they said that SR3 preorders are up 4x from SR2, WWE12 preorders are up significantly from last year, and they also said that every 1 million units of SR3 they sell over their projections could generate significant earnings leverage of around $.40/share (my calculation).

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Shouldaville
Hey guys...

TSA, that was what I was going to add. All the "less than" language leaves a lot of questions. Is uDraw at 2.5M or 2M then? That is the title that could really pull up short. WWE and UFC look good, but are people going to buy 5M+ of wrestling/fighting games? I also think SR3 can ship 5M this year. The 60% margin on the extra 2M will help cover other disappointments. A few titles next year look strong as well, but you never know what will come up with THQ.

Shouldaville
As soon as I post that I see

As soon as I post that I see the Ubisoft Drawsome Tablet. That will pull some uDraw sales as well.

darrens
darrens's picture
Okay, thanks guys (and

Okay, thanks guys (and welcome shouldaville although I just checked the Take Two thread and was expecting to see something from you there).

The Drawsome looks like a real "me-too" gadget but Ubisoft probably do have some traction with the demographic and if they can nail the software (which I'm not sure THQ has) then Ubi may be able to pull away some market share. However, Ubi's isn't coming out for another month and I think it's N. America only so THQ need to work hard beforehand.

darrens
darrens's picture
7/10 from Eurogamer Italy for

7/10 from Eurogamer Italy for SR3.

Shouldaville
SR3 scores

7 from Destructoid as well (and Sterling is a fan). The other scores look better though, so a mid 80's average is likely. At least it is not another Homefront disaster.

Farrell really downplayed the potential Ubisoft Drawsome impact yesterday. Regardless, the Udraw estimates still may be too optimistic.

darrens
darrens's picture
On metacritic it's currently

On metacritic it's currently running at low 80s for the PS3 and high 80s for the 360 which is not too shabby....but it doesn't make it a "must buy" in the face of all the competition which are critically and commercially stronger.

On the flip side, there's nothing else quite like it at the moment so maybe it will surprise me by just appealing to the silly side of gamers everywhere but I remain fairly strongly of the view that this should have been released ... anytime except now.

With regards to the drawsome then I suppose he would say that wouldn't he.

tsanalysis
tsanalysis's picture
I think mid-high 80s (PS3/360

I think mid-high 80s (PS3/360) for SR3 on Metacritic is great. Also, SR3 appears to be tracking well on Amazon, Gamestop, Wall Mart, etc, almost on par with Assassin's Creed Revelations. So I'm still watching THQI but would prefer to go long on a pullback.

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darrens
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Well, without wanting to go

Well, without wanting to go on and on and on about this, it's great....if it was being released anytime but now. Without doubt it will do well in its first week because there are plenty of loyal fans but I find it mystifying to release this now (when it's probably most people's 3rd or 4th choice game) rather than at a time when it would be 1st or 2nd choice.

However, you never know with these things so I will be watching its performance closely because if it doesn't get drowned out then it could drive a surprise upside for THQ.

tsanalysis
tsanalysis's picture
You may be right still but it

You may be right still but it looks like a couple things ended up working in THQ's favor with the release date they chose. Looking at the other major releases this week, SR3 ended up being the highest rated. AC:R reviews, as you noted in the Ubisoft thread, are kind of meh at 80% on Metacritic. The main complaint against the game seeming to be that it is basically the same as last year's game - more of the same. NFS: The Run is a disappointment this year with a 72% Metacritic average (only 5 reviews so far but I played the demo and was disappointed and a couple reviews have mentioned how short the game is so I do not expect much improvement). And then you have Halo Anniversary, a remake with an 83% on Metacritic so far. So I think SR3 offers something different than the other games releasing this week.

Earlier in this thread you said you thought NFS:The Run would sell better than SR3. SR3 has reviewed better and is tracking better online. I am curious if you still think that NFS:The Run will outsell SR3? If that happens it will be because of Need for Speed's brand recognition rather than the quality of this year's game, supporting your argument that THQ chose a poor release date. If SR3 outsells NFS:The Run I think that will show that quality and differentiation made a difference, which was my original reason for believing SR3 could hold its own in a crowded release schedule.

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darrens
darrens's picture
I wasn't actually saying that

I wasn't actually saying that I thought NFS:TR would sell better, I was just mentioning it as another big name title out the same time. (I actually think the NFS is dying a slow death and wouldn't be surprised to see it crash and burn (pun intended)).

So, I wouldn't infer anything about how it sells against NFS.

I'm not expecting it to keep it's head above water as we go into the holiday season but I feel that's the title that will make or break THQ's year so I'm keeping a keen eye on it.

darrens
darrens's picture
SR3 46% above SR2 in its

SR3 46% above SR2 in its launch week in the UK.

That's a really, really good start and gives a lot of confidence that it won't as I've been (maybe incorrectly) predicting get drowned out by all the big releases.

THQ now on my watch list.

darrens
darrens's picture
Not verified, but here are

Not verified, but here are the UK numbers:

Call of Duty: Modern Warfare 3 - ~256,000 (-87%) / ~2,230,000
Assassin’s Creed: Revelations ~238,000 (Assassin’s Creed: Brotherhood ~229,000)
Saints Row: The Third ~103,000 (Saints Row 2 ~72,000)

darrens
darrens's picture
WWE 12 seems to have ended up

WWE 12 seems to have ended up with very mixed reviews. It's clearly a bit of a love it or hate it game and it's ended up with a metacritic in the mid 70s which isn't great.

Also, I can't help notice that (in the UK at least) SR3 sold about 45% of AC:R. Now, if AC:R is on target to do 6.5m that puts SR3 on target to do just under 3m but that's sell through so if they are looking to sell in 3m of SR3 in this financial year then I think they are well on track to do that. Of course, that assumes that AC:R is going to get to 6.5m and that the rest of the world mirrors the UK but it's all we've got for now.

THQ looking like they could well out-perform their forecasts for Q3 but let's keep an eye on those sales.

darrens
darrens's picture
SR3 sales down 40% in UK week

SR3 sales down 40% in UK week 2 which means 62k sold if that number up above is correct. #3 in the UK all format charts which is a very good result for THQ and it certainly looks like (in the UK at least) it isn't getting lost in the crowd. In fact, it outsold Skyrim, FIFA and...WWE 12 which entered the chart at #6.

tsanalysis
tsanalysis's picture
Interesting numbers for SR3

Interesting numbers for SR3 so far. I believe the UK numbers are supposed to represent 90% of retail so the actual would be slightly higher. Also, there appears to be a slight discrepancy reconciling this week's numbers with last week's (I take it you got the numbers from NeoGAF), the end result being that SR3's numbers for both weeks could be slightly higher again. It won't make a huge difference though, SR3 appears to have sold through between 160k-200k in the UK in its first two weeks. The console split is also interesting. SR3 is doing very well on 360, but the PS3 version is lagging quite a bit. It is expected that SR3 would do better on 360 since the series started out as a 360 exclusive, but I was not expecting the split to be so lopsided (around 2/3rds 360, 1/3 PS3).

If the ratio of UK sales to NPD sales is similar to AC:Brotherhood's ratio from last November, then that means SR3 will have sold in the neighborhood of around 600k according to November NPD. SR3 sold surprisingly well in Japan, selling 51k units (36k PS3, 15k 360) in its first week. So adding the 600k US + 200k UK + 50k (+2nd week sales) Japan + remaining territories, and it looks like SR3 sold-through around 1 million worldwide in November.

Again, if SR3 follows AC:Brotherhood's sales pattern from last year, then December sell-through will roughly equal November's. While there will be continued drop-off from week to week, there will be 5 weeks in December NPD compared to 2 weeks in November NPD. So that would mean another million sell-through for SR3 in December.

Again using AC:Brotherhood's sales as a guide, January through March sales for SR3 could equal around 400k worldwide. So that would put sell-through at 2.4 million or so by the end of the fiscal year. With 2.4 million sell-through, 3 million ship-in seems realistic. However over-performance would appear modest.

In one of the articles about last week's UK sales, it said that WWE12's sales were a 22% improvement over last year's version. So that was encouraging.

Overall (considering uDraw and the rest of THQI's lineup) I would say that so far THQI appears on track but I will be watching the upcoming weekly UK charts and November and December NPD charts to see how SR3 is tracking compared to the model I outlined above.

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darrens
darrens's picture
If I use my own rule of thumb

If I use my own rule of thumb then I get 1.2m units sold in its first couple of weeks (globally) and a 2.4m unit sell in. If SR3 keeps in the upper reaches of the chart through December then I think that has to mean a pretty substantial out-performance by SR3 but it's early days.

I wouldn't read too much into WWE 12 first week sales because there's been a real problem with sales dropping off very quickly after big week 1 sales so I'd like to see how WWE 12 performs going forward.

Put it all together and I'm warming towards THQ, pretty much on the back of SR3 which has pretty much made me eat my words so far. 2nd week SR3 sales higher than 3rd week Skyrim sales? I would have put long odds on that happening.

Shouldaville
Minimal SR3 discounting

Kind of surprising, but there has really been no discounting on the title yet. The THQ store offered a $20 credit over Black Friday, but that was about it. I know it just came out, but in comparison AC Revelations was $34.99 nearly everywhere. At this point it doesn't seem they will ship much more than the 3M this year, but discounts at the first of the year when everyone has gift money to spend could really help. With so much DLC planned, SR3 needs a strong base going forward.

tsanalysis
tsanalysis's picture
I noticed that as well. Of

I noticed that as well. Of the major (full price) holiday releases only MW3, Skyrim and SR3 haven't had any meaningful discounting yet. NFS:The Run (also released on the same day as SR3 like AC:R) was also heavily discounted. Hopefully that's a good sign for November NPD.

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darrens
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SR3 sales down 24% in UK week

SR3 sales down 24% in UK week 3 which means 47k sold.

212k in 3 weeks in the UK. I think it looks comfortable for 3m sold in for the fiscal year.

darrens
darrens's picture
A profit warning from THQ

A profit warning from THQ although very little clarity on the impact on profit. However, with a >$100m hit on sales then I would have thought the impact on profit is going to be pretty big so not looking good for THQ.

I think SR3 was doing okay, not so sure about WWE 12 but no danger signs yet, they are blaming it on uDraw. That isn't a massive surprise given that it did look a bit weak but they must have had very hefty (unrealistic?) expectations for it to be warning this early and this big.

Also, looking at today's price action, the news clearly leaked out which is going to really annoy a lot of private shareholders who, once again, will feel that the playing field isn't very level.

tsanalysis
tsanalysis's picture
I am not so sure that the

I am not so sure that the news leaked out early. I think THQ's no show at the UBS conference they were supposed to present at this morning was the tip-off. That was the case with me. THQ's presentation was supposed to start at 9:30am ET, the same time the market opens. Shortly before the market opened I went to THQ's IR page to listen to the live webcast because I was thinking of buying or selling shares depending on any updates THQ gave during their presentation. When I discovered there was no link to listen to the webcast, and that the event had been taken off of THQ's event calendar page, and even the PR THQ had released on Nov 30th about presenting at the UBS conference had been removed from THQ's news page, I thought it likely that THQ had cancelled their presentation. That is almost never good news in my experience so I decided to sell my entire position at the open.

I too was surprised the warning (approx $130 million) was so big. At wholesale I figured that equals around 2.2 million units of uDraw, almost equal to THQ's entire guidance of less than 2.6 million units shipped. That big of a shortfall didn't make sense. Then I remembered that THQ said during their last call that they were expecting a software tie ratio for uDraw of around 1, similar to what they experienced with uDraw last holiday. Taking that into account, the $130 million shortfall would equal roughly 1.5 million units of uDraw and 1.5 million units of uDraw games. Still a big shortfall but more plausible.

With THQ trading as low as $1.10 after-hours I was tempted to buy back some THQ tomorrow but I feel there are too many unanswered questions now. If the uDraw shortfall seriously damages THQ's cash balance (previously guided to be at around $130 million at fiscal year end) then dilution suddenly becomes a worry whereas I had previously not considered that a problem.

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darrens
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Well done for getting out, I

Well done for getting out, I'm not sure I would have put 2 and 2 together on that one. Actually I did open a small THQ position about a week ago but closed it a couple of days later because I wasn't excited about SR3/WWE and couldn't see any potential for over-performance. So, for the wrong-ish reasons I made the right decision.

Even with the software it seems like an awfully big miss on the back of uDraw alone. I hadn't really paid attention to THQs software forecast but $500m+ seems like an awfully big forecast in the first place. I actually can't find that forecast in their last earnings announcement and all I had picked up was Q3 earnings of $1.20 to $1.50 per share. If I'd seen (or maybe noticed) that revenue number then I would have been very wary right from the start.

I'm not sure how much of this miss was due to disappointing sales and how much was due to unrealistic expectations but THQ are going to have struggle now to win back investor confidence.

I haven't looked at their cash (and debt) but it looks like THQ are going to be in for a bumpy ride.

tsanalysis
tsanalysis's picture
I got lucky on this one. Had

I got lucky on this one. Had THQ not scheduled the UBS presentation (and pulled out of it) I likely would have held my position until the eventual warning. My research was indicating that SR3 was on track to ship around 4 million units this fiscal year, and WWE12 was more or less on track as well. I was skeptical of uDraw on 360/PS3 from the get-go, and of course I noticed the weak uDraw rankings online, however I was able to build a realistic case in my mind which led me to believe that uDraw under-performance was not as bad as it appeared and would be compensated for by SR3 over-performance:

- I thought that uDraw shipments would be more heavily weighted towards Europe, where it is the first holiday season for uDraw (the original uDraw did not launch until March of this year in Europe). uDraw appeared to be doing better in Europe. For example the Wii SKU is charting in the top 100 on Amazon UK without discounting.

- I thought that uDraw shipments would be more heavily weighted towards Wii than 360/PS3. In my mind I thought the likely breakdown would be something like 75% Wii, 25% 360/PS3. It now appears that THQ had much more aggressive assumptions for 360/PS3.

- This holiday there were 6 SKUs for uDraw (360, PS3, Wii, Wii Disney Princess bundle, Wii Spongebob bundle, and original Wii SKU from last year) compared to only the one SKU for uDraw last year. So I thought this partially explained the lower online rankings this year as demand was split across 6 SKUs instead of one.

- This holiday there was better retail presence. As THQ mentioned on their last earnings call, with the surprise success of uDraw last holiday THQ was able to secure much better retail presence/space for uDraw this year compared to last. I thought this better retail presence also partially explained the lower online rankings this year.

- General search activity for uDraw this holiday, as shown by Google Insights, appeared to be on par or better than last year:
http://www.google.com/insights/search/#q=udraw&date=1%2F2011%2012m%2C1%2...

So I was still expecting uDraw weakness but putting all the above together I built a credible case in my mind for uDraw weakness being manageable and able to be compensated for with over-performance from SR3. I shouldn't have given THQ management the benefit of the doubt on this one, lessen learned.

And going back to the news leaking, perhaps it did in a way. I only noticed that any mention of THQ's attendance at the UBS conference was missing from their IR page when I went to listen to the webcast yesterday morning. I wonder when THQ actually pulled those links down and when they informed UBS that they would not be attending the conference. It could have been a day or so earlier giving those who had learned of that development an earlier heads up.

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tsanalysis
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One more thought on this.

One more thought on this. Management really screwed up badly this time. They missed their uDraw projections by a mile (unless they were not being truthful about SR3/WWE12 sales as you mentioned). However my research indicates that SR3 and WWE12 are doing respectably so I think it really is all uDraw. Had THQ missed by only a small amount (say by $20-$40 million or so), given THQ's very low valuation I think the stock likely would have rallied on those results. Or had THQ taken down revenue guidance by $100 million at the last earnings announcement as I wish they had, they would have set themselves up to roughly meet that guidance and again I think the stock would likely have rallied.

Instead, here they are coming off of what I think is likely to become their most successful, highest selling, wholly-owned internally-developed IP in company history - that is the holy-grail for video game publishers, a real boon to the bottom line - and the stock is making new all-time lows. I could barely have imagined such an outcome.

Now because of how badly they botched their uDraw projections they have squandered the golden opportunity that SR3 presented them. I think they likely already manufactured several million units of uDraw, expecting to ship them all this holiday, and so the cost is already sunk and all those units are probably sitting in their warehouses. And the thing about uDraw is that it performs more like a toy and really only sells during the holiday. So if they don't work off that inventory in the next few weeks, good luck moving it after that! That is likely to create a drag on the March quarter and well into next fiscal year as well. I still see all those plastic toys that Activision went crazy with a couple years back (DJ Hero, Tony Hawk Ride/Shred, the fishing/hunting accessories, etc) sitting in the channel and in clearance isles, still left even after being priced as low as $5. That is what is going to end up happening with uDraw.

However unlike Activision which could afford to absorb all those losses this could really devastate THQ going forward. As I mentioned I think THQ already made all those uDraw units so the cost is sunk. If they sell $130 million less uDraw than they planned, their projected cash balance will be severely impacted. Probably close to the amount of the shortfall minus whatever price protection they were allowing for (maybe $20-$30 million). So I am thinking their fiscal year end cash balance will now be closer to around $30 million instead of $130 million. Now their ability to continue to fund all their upcoming games and pay off their $100 million debt which is due in 2014 comes into question. So further dilution becomes a very real concern suddenly, and at THQ's current very low valuation dilution could be severe. Suddenly THQ is looking like it could be on the verge of a death spiral if they are not careful. Now the margin for error is very thin and they need practically every future release for the next several quarters to be a success to have a hope of climbing back. Really disappointing outcome.

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darrens
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I realise that it's hardly

I realise that it's hardly relevant now but SR3 sold <700k in November NPD. Not bad.

I'm going to try and understand THQs balance sheet a bit better. The one they included in their last set of accounts was fairly unfathomable so I'm going to have a look at some earlier editions.

One questions, which is more curiosity. Did you notice the $500m+ original forecast revenue number in any of THQs financial PR or conference calls? I couldn't find it from a quick look but I know you've been following THQ closer than me so I may have missed it. It seems awfully big and I'm surprised nobody questioned it at the time....so I'm wonder if there was "a time".

tsanalysis
tsanalysis's picture
They never gave specific

They never gave specific guidance as far as I recall. They only said that the quarter would be the best in the company's history, from both a revenue and EPS standpoint, which is where I believe the analyst estimates came from.

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darrens
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Okay, not to beat a dead

Okay, not to beat a dead horse but do you know what their previous "best" quarter was? I'm just trying to gauge a) exactly how much the management mis-led the investment community and b) whether I could have worked out the $510-$550 myself if I'd worked a bit harder.

I just think it was incredibly bad form for them to suddenly drop their forecast into a profit warning having never disclosed it previously. If I was a THQ investor I'd be furious with them and it may go some way to explaining whether or not they have any credibility left going forward to attract additional finance.

tsanalysis
tsanalysis's picture
THQI's previous best quarter

THQI's previous best quarter was I believe the Dec 2008 quarter, with $509 million in sales:

http://www.nasdaq.com/aspx/revenueepssummary.aspx?symbol=THQI&selected=THQI

So when THQI said 'best quarter in company history' above $510 million is what I interpreted that as. I thought that was on the high side but achievable with aggressive ship-in of their key titles for the quarter and a small contribution from their usual holiday shovelware.

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