THQ Earnings: Exceeds Expectations with Narrowing Loss

THQ Inc.’s (NASDAQ:THQI) second quarter loss narrowed, beating estimates. THQ is a worldwide developer and publisher of interactive entertainment software for all popular game systems.

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THQ Inc. Earnings Cheat Sheet

Results: Loss narrowed to $21 million (loss of $3.06 per diluted share) from $92.4 million (loss of $13.50 per share) in the same quarter a year earlier.

Revenue: Fell 26.5% to $107.4 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: THQ Inc. reported an adjusted net loss of $1.76 per share. By that measure, the company beat the mean analyst estimate of a loss of $3.54 per share. It beat the average revenue estimate of $29.3 million.

Quoting Management: “When I joined THQ the company made a public commitment to quality titles. We always expected that in some cases this would mean that more time would be needed to make sure that every title is of the highest possible quality,” said Jason Rubin, THQ’s President. “Our fourth quarter releases are the first titles that I have had the ability to materially impact, and experience told me that the games needed additional development time to be market-ready. I believe South Park’s market opportunity is significant. It is shaping up to be one of the most anticipated titles of calendar 2013. It is also an expansive title, encompassing multiple television seasons’ worth of content. We have been working closely with the co-creators of South Park, Matt Stone and Trey Parker, to make sure all of the game’s content performs to the high standards of the TV show, and this takes time. THQ is committed to giving gamers no less than the rich South Park game they have been waiting for and deserve. We are also inspired by the potential for Metro: Last Light and Company of Heroes two. I believe Metro: Last Light is a title that should set standards for visuals with its stunning atmosphere, unique location and cutting-edge style. Company of Heroes was one of the highest rated RTS titles in history, and Relic insists that the sequel live up to its pedigree. Giving both of these titles time to reach their full potential is the right thing to do for the products. “THQ is excited about our position and pipeline of games beyond fiscal 2013, including the sequel for Saints Row: The Third, Homefront two and the as-yet-unannounced game from Turtle Rock Studios. In total we have ten titles in development for fiscal 2014 and later, almost all of which are based on our own IP. We intend to announce more details about our future slate in the coming months. I firmly believe releasing our fourth quarter titles without extra time for polish in the current environment would lead to underperformance that could in turn lead to future additional capital shortfalls. But extending development schedules in order to make the best possible titles also has financial implications. Yet there can be no doubt which path has the greatest chance of leading to the long-term success of the company. We must follow the course that generates the highest quality games, and will establish THQ as a mark of quality for the consumer,” concluded Rubin. “Clearly, THQ faces a number of opportunities and challenges,” added Brian Farrell, THQ’s Chairman and CEO. “I am confident about the opportunities that lie in our robust slate of games and in our studios. But we also face challenges operating with limited capital resources in the highly competitive market for games, and we are working diligently to resolve those challenges.”

Key Stats:

The company has now topped analyst estimates for the last three quarters. It beat the mark by 84 cents in the first quarter and by $3 in the fourth quarter of the last fiscal year.

Revenue has dropped in the past two quarters. In the first quarter, revenue declined 31.5% to $133.7 million from the year-earlier quarter.

The company reported a net loss last quarter after booking a profit the quarter before that. In the fourth quarter of the last fiscal year, the company booked a profit of $55.8 million, or $8.20 per share.

Looking Forward: The outlook for the company’s results in the upcoming quarter is unfavorable. The average estimate for the third quarter is $1.45 per share, down from $1.85 ninety days ago. The average estimate for the fiscal year has reached a loss of $4.10 per share, down from a loss of $3.80 ninety days ago.

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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