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

To: Marc Newman who wrote (4599)	4/15/1998 11:18:00 AM
From: Bleeker	Respond to of 14266

I concede that I'm probably being a little conservative with 39 cents. But my point is that even if THQI earned around 36-39 cents its P/E would be unsustainably low at 15. Thirty nine cents alone should lift THQI above $30, especially if the conference call is strong. I think a split becomes a more relevant issue when THQI starts to trade in the mid $30s and I don't think we are too far off from that target if the broader market can sustain (not even advance) from current levels. One thing that continues to drive and I think will continue to underpin the broader market are long-term interest rates. As long as inflation sensitive long-term rates remain below 6%, the market should remain o.k. As far as the Asian flu, exports only account for 11% of U.S. GDP and Japan is only a tiny fraction of that, so all the fear about the Asian contagion is really exaggerated. On book value, I concede that I exaggerated how unimportant it is as a measure of valuation. But certainly it is becoming less and less important, especially for information-intensive and non-manufacturing companies that are involved in a lot of outsourcing. An intangible asset like Farrell's industry know-how is very difficult to put a price tag on. That's why I think it's more useful to make P/E industry comparisons with THQI. Bleeker

To: Marc Newman who wrote (4599)	4/15/1998 1:58:00 PM
From: Todd D. Wiener	Respond to of 14266

Let's look at Q1 a different way... For 1998, THQ has been #5 in units sold (among console games), #15 in total interactive entertainment software sales in 1997, and it was #20 in 1996 in units sold (includes PC). Look at the PC Data list of gamemakers, according to dollar sales. For February ( pcdata.com ), THQ was #5 and ERTS was #4 in software sales. In March, THQ was #4 and ERTS was #3. In March and February, THQ was well ahead of MWY and AKLM. ERS posted $144 million in sales in Q1 1997. It posted $391 million in Q4 1997. It had $0.84 in EPS in Q4, and the estimate for Q1 is $0.24. Assuming that sales and EPS maintain the same ratio (not a precise assumption, to be sure), Q1 sales should be $112 million (23% decline from 1997). I think that ERTS will do much better than this number, but keep $112 million in mind for a moment. MWY had home video game revenues of $77 million for the December quarter. MWY reported $0.48 in that quarter, and the estimate for this quarter is $0.20. Making the same assumptions, revenues could be in the $30-35 million range. That wouldn't compare favorably with 1997, but just bear with me. AKLM had sales of $69 million in the February quarter. I think it's fair to assume that total sales for Jan-March were at least half of that figure. If we agree with this mostly imprecise, yet conservative, estimate, we have: ERTS-$112 million, Feb rank:#4, Mar rank:#3 MWY-$33 million, Feb rank:#9, Mar rank:#6 AKLM-$35 million, Feb rank:#8, Mar rank:#7 THQI-$?? million, Feb rank:#5, Mar rank:#4 Can THQI make $40 million in sales in Q1? It sure looks like it. I realize that after Nintendo, Sony and ERTS, THQI is a distant 4th place. Still, look at the revenue (conservative?) estimates for AKLM & MWY, which each ranked an average of 7.5 in Feb and Mar. And look at the conservative estimate for ERTS, which averaged 3.5 in Feb and Mar. THQI averaged 4.5 (4+5/2)in Feb and Mar. Even if the difference between 3.5 and 4.5 is a lot (let's assume that 3.5 is twice as much in revenue as the 4.5 rank), THQI could have sales of $56 million. We assume: The 3.5 slot has sales 100% higher than rank 4.5, and 4.5 has sales 65% higher than the 7.5 slot. Doesn't this seem fair? I realize that this is a very crude and imprecise way of measuring sales, but it's a good way to check up on other types of estimating methods. Is $56 million in sales for THQI reasonable? Perhaps. IF THQI shipped 700,000 Nitro and 450,000 NWO, this level of sales is perfectly reasonable. If THQI can achieve this much in revenues, I'd expect to see EPS over $0.90. If this happens (and I'm not suggesting that it will), don't be surprised to see THQI in the $40s by May. Is this too irrationally exuberant? Okay, let's use the estimates for AKLM and MWY ($35 million) and assume that THQI had the same amount of sales. That would provide an EPS in the mid-40's. So don't expect this stock to sit still, even if THQI reports only $0.45 for Q1. In my opinion, anyone waiting to buy on Wednesday 4/22 will be paying a much higher price for this undervalued stock. If you're asking me, I'd say: BUY BUY BUY BUY BUY BUY!!!! Todd