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Technology Stocks : THQ,Inc. (THQI)
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To: Don Westermeyer who wrote (3976)3/12/1998 6:31:00 PM
From: Trippi  Read Replies (2) of 14266
 
Tom C. ---

1st -- no way THQ takes a 40% hit on earnings a year from now -- not even close -- THQ will grow earnings in 1st quarter 99 by another 35% over the spectacular growth its about to release this April. In 1997 we had PAX and WCW and in 1st quarter 98 we had reorders of NWO and the first Nitro shipments -- we will still have WCW sequeals in late 98 early 99 and we will have Quest, Rugrats, and a host of other games that will surely deliver more to the bottom line than PAX.

2. This company has never invested much in its own R&D -- that is not THQ's business model. The model that has sucessfully grown earnings from .36 for fy96 to $1.35 for fy97 and est $1.80 for fy98 is to buy rights cheaply (like $1million for WCW) and build the most efficient distribution system in the industry. THQ makes money on games when it only ships 50,000 units -- while every other company in the industry would lose its shirt. And WCW ain't the only License they got -- try Disney, Lucas Arts, Nickelodeon (Rugrats) Quest and a host of others.

3. THQ's at times annoyingly cheapskate and conservative initial shipment and reserve system makes it almost impossible for the company to ever suffer a significant loss on a game even if it is a dud.

4. Management is extremely conservative and if they say they are going to grow revenue and earnings by 35% over each quarter compared to 1997 -- believe them -- that number is low.

5. The mix of games for 1998 is much better than the mix for 1997 -- but this won't be clear to the market -- and THQ's lack of dependecny
on WCW won't be clear to the market until at least May but more likely June or July of this year.

6. ERTS didn't give WCW to THQ -- THQ built that one on its own -- as it will do with Quest, the Dark Half, Broken Sword. THQ makes a few pennys on SNES games as it is and has been moving away from the platform regardless of porting ERTS games or not. You say Road Rash will be it for ERTS ports -- maybe so -- but THQ never ported for ERTS to N64 ever in the past -- ever -- so a one or two time gig that never happened before and may never happen again -- can't have much effect on THQ's bottom line. And its doubtful that ERTS wants to actually get back in the gameboy business -- margins are way too small for them -- so we will see if they cut THQ off here.

7. Our only real problem (if you believe in the company and in the management) is that 1st quarter earnings will show huge WCW earnings that may futher hold down our current valuation.

Trippi
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