Conference call notes: Sorry for the delay, my computer crashed.
13th consecutive positive earnings comparison.
All 3 WCW titles sold quite well in Q1.
Shao Lin in Q4 - It will be the first multiplayer (4 person) fighting game for PSX.
Road Rash 3D & Nuclear Strike in 1999
GameFX is an EVOLUTIONARY move for THQ. For a modest price, THQ gets 2 development teams, who both produce titles and are at the cutting edge of gaming 3D technology. Very strategic move for THQ. Great for the OEM market, because GameFX has a good relationship with 3Dfx and Intel. THQ doesn't expect any impact (good or bad) in 1998 from acquisition, except for a one-time charge in Q2 for in-process R&D.
Big releases in each quarter:
Q2- Quest 64, Granstream Saga (PSX), BASS Masters (PC)
Q3- WCW Nitro 64, BASS Masters (PSX), RedJack (PC/Mac)
Q4- Rugrats (PSX, GB), Dead Unity, WCW (PSX and PC)
Q1 1999- Rugrats 64
THQ expects to develop titles for the Color Gameboy.
THQ intends to continue to produce wrestling games after WCW license expires. Wrestling options are numerous (THQ could license an individual wrestler or other organizations, using the Inland game engine). THQ hopes to have a firm wrestling strategy in place by the next conference call.
Interest in Rugrats and Quest 64 appears to be very strong.
Sequels in 1999: BASS Masters, Brunswick and Pax Imperia. Possibly RPG games will have sequels, too (Quest, Granstream?).
1999 expected releases (by platform): 6-8 N64, 12-14 PSX, 6 GB, 8 PC
25% top-line growth should be possible in 1999. Bottom-line growth should be better than 25%.
Expect royalties to range from 18-24% of sales, and selling costs to range from 7-9%. G&A should gradually decline as a percentage of sales.
Farrell doesn't expect to see THQ beat estimates as much as it has in Q4 and Q1 (this is why the stock is weak today), but the company is clearly upbeat and optimistic about 1998 and beyond.
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Here's my take on things: I just spoke to Brian Farrell and he said that he doesn't want people to expect THQ to top estimates by the same amount as in Q4 and Q1. This can be interpreted in different ways. First, by making his comments, Farrell is increasing the likelihood of future upside surprises. Ironic, no? Second, he could be doing this so that THQ doesn't miss estimates. Either way, the street estimates are going to be moved up past $2.00 for 1998, with at least $2.50 for 1999 (based on 20-25% topline growth and expanding margins in 1999).
Other information from my chat with BF:
It is possible that there will be a 7th WCW title (available Q4), but only if the previous titles are not performing very well.
Out of the Void (working title), a GameFX title, could be released in Q1 1999, because THQ doesn't need it to make the 1998 numbers. It will not rush the game. It will release it only when it's completely ready. Supposedly, this game is really good. Of course, Pax Imperia was supposed to be really good. Let's hope Pax's sequel in 1999 is better than the current title.
THQ's goal is to have 20% of 1999 revenues from PC.
Road Rash & Nuclear Strike will probably be released in Q3 1999, because the first half is going to be strong enough with WCW titles.
If THQ believes that the market will support additional WCW units in 1999, THQ will stock up on WCW units (either in inventory or at manufacturers) before the end of Q4 1998. The license deal says that THQ can sell in H1 1999 only those units on hand or in-process. If the market will bear WCW, THQ will sell as many units as possible in H1 1999.
I'm modifying my estimates, but I still expect THQ to earn over $3.00 in 1998.
Todd |
