Good to see Herb help define the short case some more. Always good for a laugh during the day.
My favorite is comparing the end of Q2 to the end of Q3. You'd think that even Herb would know that video games are seasonal, and that you probably should look year-to-year, rather than one quarter to the next. Hey, just thought of something - we are probably going to make $.65 at least in Q4 1999. If I take that times 4 quarters, we have $2.60 in earnings. Simplistic thinking - the market is full of it these days.
In regard to reserves, what is important is the overall dollar level of the reserves, as well as the ratio of the reserves to the amount of unsold product. Comparing the reserves to the amount of gross receivables is not that meaningful, since receivables may or may not reflect unsold product. For all anyone knows (Herb included), THQ could be more conservative now that they were last year. Funny how Herb classifies EA as a "class act". Here is the comparable info for EA on reserves:
March 31, 1999 (end of fiscal year)
Gross Receivables - $222,318,000
Reserves - $ 72,850,000 (32.8% reserved)
Net Receivables - $149,468,000
September 30, 1999
Gross Receivables - $330,496,000
Reserves - $ 64,747,000 (19.6% reserved)
Net Receivables - $265,749,000
So aside from the fact that the issue doesn't matter because of seasonality and a weak relationship to receivables, you have bigger percentage drop in EA, not to mention an overall lower reserved percentage, as well as decreases in absolute dollar terms when receivables increased dramatically.
The one issue that might have a little substance is the capitalized software costs issue. These capitalized costs were up about $9 million over last year's 3rd quarter. But given the much higher quantity of releases in the 4th quarter, it doesn't seem unreasonable. Bottom line is that Herb is guessing and doesn't even understand the industry. What has made THQ money at competitors expense is it's focus (for the most part) on publishing games based on established hit licenses, rather than trying to develop them internally.
Not to mention great timing, what with the WWF now approaching 3 times the audience as WCW on Monday night.
But, in the end, here's hoping that Herb can drive us down a few more points to allow even better opportunities to buy more.
Kory |
