"My answer was shorthand"
Marc, here is the problem. If sales are x and you want to grow sales to 1.3X next year you need either to have .3 more titles next year or the same number of titles have to have .3 more sales next year or some combination of the above.
At first it is easy. You have a small number of titles and you successfully replace them with a somewhat larger number. Some titles have a life longer than a year or if not longer than a year, there are sequels etc. For THQI we call these franchise licenses. This really helps the situation but it is oh so hard to obtain these. Perhaps also, the better you are at exploiting licenses the more the licensee expects to receive for their license.
Then there is also geographical diversity, THQI can add new geographical markets to help with the .3 growth. This process runs out eventually since the U.S. has curtailed expenditures for space exploration and settlement. Non-U.S. companies also invade the U.S. market further complicating the math and the growth problem itself.
Can this complex and challenging process of .3 growth continue to be controlled by one person indefinitely? Of course not so then there is a need for finding, adding and integrating additional key players in the company....this changes the nature of the company.
We need to keep the new key players motivated.....stock options are nice since it strips out potential increases in expenses and moves compensation to the shareholders account. Each year the impact of this approach increases, can it continue indefinitely? November has become a scary time for confronting insider sales data.
I am not trying to create a negative scenario for THQI. But for sure if you were to go through the above analysis in an organized way you might conclude that THQI must transition into a very different kind of company. One approach they have been taking is making acquisitions to help maintain the growth....a different skill set. How has that worked? How has this process impact the number of shares being sold by the owners of the acquired companies?
Another transition for sure will be The Internet....will THQI master it without a hiccup?
This year THQI is faced with a sector that is predicted to not have any growth or to shrink...personally I think this prediction is hogwash but if correct it presents an overwhelming challenge......Farrell just blinked on this one hence his seemingly 11 a.m "evening" phone calls to analysts. (Maybe at 11 a.m or so the secretaries scheduled the evening phone calls and maybe even revealed the topic...Mary is that what you meant to say?).
It is a complicated situation. To conclude that THQI can continue to grow at .3 a year replacing and increasing the number of franchise licenses, integrating new geographies, delegating authority, and not missing a beat is pretty optimistic.
Fortunately for longs, it isn't necessary. As the situation at THQI "deteriorates", there are other factors that may make longs very happy:
1. Being bought out if THQI misses more than one beat. (increasingly likely).
2. Commanding a higher PE if THQI survives this process and becomes a different kind of slower growing but more traditional player (not a one man band but more like ERTS).
3. Commanding a much higher PE if THQI pulls off a miracle and rides The Internet rocket to new heights or redefines its sector in a way that it reestablishes itself as being in the takeoff or early growth stages rather than transitioning into maturity. Very unlikely but the prospect of a 60 - 100 PE is enticing to be sure.
But abject failure is possible also. Mike Young sees this and so do many others. Raymond Norris thinks his charts reveal that investors as a group see this risk and I think he has interpreted the data correctly. What Raymond doesn't seem to be willing to acknowledge is that the market may be wrong. TA can only reveal what people think as measured by their investing actions. It can't predict the future (and Raymond Clearly states that).
The future for this sector may be brighter than predicted by the pundits and THQI may be more successful than predicted by investors at dealing with both a temporarily slowing sector and the dual-challenge of sector and company transitions.
And of course investors are often short sighted. Raymond's analysis may correctly reflect a "consensus" that the next move for THQI may be down or sideways. But this "next" move may be next week or even this past Thursday.
By Monday, investors may see the situation differently and Friday's action may suggest a change in short-term sentiment. A small reason for being optimistic for the short run so Aloha is correct that Monday will be_____
Not sure I would call it "fun:, but "exciting" yes. They say that men being hung by their neck exhibit physical signs of great excitement. I don't think that most in that situation find that last erection "fun".
None-the-less, I am more optimistic about making money on THQI from this point than I have been in the past couple of months. The downside is now manageable ($12). Compared to a lost of $20 per share, $6 doesn't seem that scary. And an eventual but not way out in the future move up above the current price seems very likely to me. But that is short term and begs the issue of the future of the current THQI business model. |
