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

To: Zeev Hed who wrote (3899)	3/11/1998 11:37:00 PM
From: Joe Btfsplk	Read Replies (1) \| Respond to of 14266

Anybody here interested in commentary by a quack from another board? (who's been sadly missing here) Subject: To THQI's Defense...... Date: Wed, Mar 11, 1998 19:45 EST From: Norris 71 Message-id: <19980312004601.TAA10023@ladder02.news.aol.com> Trdrvic writes: THIS IS HOW IT WOULD HAVE BEEN: March 10, 1998- THQ renews leading WCW license to 2002. The people say OOOO, AHHHH, OHHHHH. The street loves it though. March 11, 1998- Stock up 4 to 36 1/2. June 1- THQ completes secondary at $ 32; 1 million shares total sold. July 17, 1998- THQ blazes to record earnings with Quest. July 18, 1998- Stock at $ 38. Trdrvic: I won't comment on the extreme subjectivity your post begs for. Your outline while plausible is farfetched IMO with contingencies and opinions scattered in each line. I could go as far as to make a time line of my own outlining my own thoughts with THQI ending up at the same 38$ level you presented however then I'd be no better in bringing my point across than you were. I certainly don't think we should somehow base a timeline on expected events (especially with no basis other than intuition). You really can't say that you'd rather THQI pay the amount asked for since you don't know the terms of the proposed contract. WCW was in a very strong position in the discussions since they could point out to the strong sales growth WCW games have provided for THQI (which ironically was partly due to THQI's choice not to be a spendthrift on advertising the game). Knowing that, they were also aware they could take those figures to the "big dogs" of the industry and get literally about anything they asked for (when you're as big as EA, you're looking for any avenue which is plausible to shareholders to increase growth - and plus you have the assets to pay whatever is needed). You also seemed to have forgotten what distinguishes THQI from its industry. Anyone remember November 18th? Wedbush downgrade (I believe they were called other names but I doubt that's appropriate <g>). (In Haines's words "The worst one day drop in THQI's stock ever." Today makes that look like small beans <g>. Also funny how THQI dropped today more than it was even worth at some points last year. Getting back to the point....) Wedbush Morgan said that as T-HQ's profile increases and larger competitors begin to take notice, the company will have to address such areas as product development, product visibility and scale in order to compete effectively in the longer term. Scalability. Does that word ring a bell ? Essentially they felt given THQI's growing business model, it's current repertoire of revenue mix was insufficient and a greater emphasis needed to be placed on internally developed games. While they did make some good points, it's not 100% relevant to THQI. It's THQI business model that got it to where it is today. And part of that model involves not spending 10 million dollars in advertising for a game to get 15 million in revenues. In fact, THQI prides itself in not overpaying and spending wastefully. These bigger companies, because of their stature, can spend that way and boost that top line growth. When you skim down and look at the bottom line, you see where it's hurting them. I'm not going to lie and say I didn't want the WCW license to be renewed. However I'm also not going to lie by saying that it wasn't the best avenue. You simply cannot make that decision without more information. And since the primary belief is that WCW was asking too much, it was probably a good idea on Management's part to invest THQI's capital in ventures that will have higher rates of return when looking at sunk costs and expenditures. What's important to remember is that THQI has to feel confident that whatever price they pay for the license, they'll be able to make up for it and then some (then some being profits). If the margin of profitability projected is only going to be 5% because of the high cost associated with the license, it's in management's best interest to not pursue that path. It's often that a CFO (or CEO) will be given several proposals of ventures. If they were only to look at the revenue that each one generated, their jobs would be easy. But they don't. They have investment opportunity schedules, internal rates of return, and a host of other measures to graphically display these ventures. And it's simply not accretive to the firm in the long run if they're willing to throw money at something that will give them a sales boost at the cost of profits (and indirectly, shareholder returns) in the short run (relative terms here guys). I certainly don't want that to happen, even if it does entail a short term bounce (in the stock price, that is). It's easy to say THQI should have paid whatever was asked but it's also ignorant without the "big picture." Given Farrell's track record, I'm going to trust that he can locate plenty of other avenues which THQI can take to become more profitable. While the bigger dogs of the industry are bleeding red ink, THQI is consistently reporting increases in profits. And it's THQI's consistent long term outlook and savvy investment decisions that makes it such an excellent performer. Wedbush was right! THQI isn't like the conventional companies in its industry. Wedbush was just wrong with their conclusions. It's THQI's differences that make it the stronger company. I don't see Akklaim reporting these high profits consistently. And hey, don't forget, these are the good times for the gaming industry (we all know what happens in the bad times). From a Technical Point of view, the stock was grossly overextended. It takes no genius to see that from a glance at the chart. THQI had never risen this far above its 50 and 200 Day Moving Averages. The street was almost looking for a reason to create a sell off. Interesting that the support at 50 was held firmly and confirms the strong support. THQI is back within its old rising channel. It's rise should continue at the support's slope. For a graphical display of the above, please email me. Conservatively Yours, Raymond J. Norris