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Technology Stocks : THQ,Inc. (THQI) -- Ignore unavailable to you. Want to Upgrade?

To: Sigmund who wrote (11771)	10/13/1999 7:37:00 PM
From: Todd D. Wiener	Read Replies (1) \| Respond to of 14266

"Only one place to send the money whether it be WWF or any other THQI product. If THQI actually collects all of the revenue it makes sense for them to show it all as revenue." I believe that there is a business entity called THQ/JAKKS Pacific LLC (or something like that). If this is the case, retailers would simply make their payments to the LLC's account. The LLC would show revenue, and it would be divided accordingly, presumeably 50% each. If you think about it, there's really no reason why JAKK should have ever been involved in the WWF video games at all. After all, AKLM had it themselves, and most gaming companies secure exclusive licenses. JAKK would still make toys for WWF. I suppose Mr. Friedman wants a second shot at the video game market (except this time, Mr. Farrell is steering the ship). It is an intriguing method whereby THQ records all revenue and related operating expenses, and then pays JAKK half of the JV profit in another line after the operating income line. The other way to do it would be for both THQ and JAKK to recognize their own half of all revenues and expenses. But I realize that this method would complicate JAKK's income statement. Although the original method we expected to see is simplest, it doesn't please Wall Street as much. And more important than Wall Street is the industry. Companies are judged by their revenues more than their profit margins. If THQ gets all revenues and pays half the profit to JAKK, my estimates indicate that THQ's Q4 sales will increase from roughly $139 million to $187 million, and the EPS would remain unchanged at about $1.25. FY1999 revenues would increase from $321 million to $369 million, with EPS of $2.75. FY2000 increases from $470 million to $650 million, with EPS of about $4.30. This also means that THQ will probably reach $1 billion in sales one year earlier than previously expected (2002 instead of 2003). It will be very interesting to see how the street reacts to the accounting decision. A rational market would show no reaction (since EPS will likely be unaffected). But we ain't in no rational market. One final thought: How will the JV publish other titles? And why? My impression was that the only reason THQ and JAKK hooked up for the JV is that JAKK had the relationship with WWF (and it was a good way for THQ to get the license). I don't see the point of the THQ/JAKK JV publishing anything other than WWF. But if it did, would profits from all titles still be evenly split? Perhaps THQ should buy out JAKK's interest in the JV. Would it really surprise anyone here if someday, JAKK and THQ were to merge? Interesting thought... Todd