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

To: Jonathan Lebed who wrote (3911)	3/12/1998 7:17:00 AM
From: Andrew C.R. Biddle	Respond to of 14266

March 12, 1998 Investors Bodyslam THQ Shares After EA Grabs Wrestling License By LISA BRANSTEN THE WALL STREET JOURNAL INTERACTIVE EDITION SAN FRANCISCO -- Score another one for the big guys. Electronic Arts, a leading video-game company, wrested a licensing agreement with World Champion Wrestling away from tiny rival THQ. Investors slammed THQ's shares on Wednesday after the company reported that it hadn't renewed the license, which accounted for 39% of its revenue last year. Shares of THQ tumbled 7 15/16 or 24% to 24 1/2 amid worries about the financial impact of the loss. EA added 1/4 to 44 3/8 on Nasdaq. Meanwhile, the Nasdaq Composite Index rose 8.29 to 1756.80, while Morgan Stanley's high-tech 35 index gained 6.17 to 517.94. EA said plans to ship its first title under the five-year agreement in midcalendar 1999. Financial terms of the deal weren't disclosed. Under the terms of THQ's existing agreement with the WCW, the Calabasas, Calif., game company has the right to distribute WCW titles through June 1999. (WCW is a unit of Turner Broadcasting System Inc., which is part of Time Warner Corp.) Analysts covering both EA and THQ said the impact of the WCW license shift was largely psychological for both companies. For THQ it causes a blow in confidence, although not necessarily to earnings -- while the contract accounted for 39% of 1997 sales, the cancellation isn't expected to depress financial results for the next two years. "There is no near- or medium-term threat to revenues or profits," said Brian Farrell, THQ's chief executive. "This is a very hit-driven business, replacing volume on different properties and different platforms is part of the business," he said. Before the market opened Wednesday, Sean McGowan, an analyst at Gerard Klauer Mattison & Co., lowered his rating of THQ from "buy" to "hold," but he didn't change his earnings estimate for the company. Mr. McGowan said he lowered the company's rating because the stock had approached his 12-month price target of $34 and because the loss of the WCW license raises questions about how the company will replace the title by the year 2000. "It could prevent the kind of visibility that you would need to sustain a $40 share price," he said. Still, he called Wednesday's activity an overreaction. Stewart Halpern, an analyst at Furman Selz LLC, left a "strong buy" rating on THQ's stock saying he believed the stock was very cheap in the wake of the sell-off. He estimates that THQ shares will hit $38 in the next 12 months. "Arguably, walking away from a deal rather than paying too high a price can turn out to be a smart thing to do," he said. Meanwhile, for EA the new revenue would have little impact on the company's results. For calendar 1997, EA had about $850 million in revenue, dwarfing THQ's sales of $89.3 million for the entire year. Andrea Williams, an analyst at Volpe Brown Whelan & Co., said the $35 million or so that WCW games bring in for THQ would be almost immaterial to EA, "but strategically and psychologically it's a good win for them." acrb