Watcher,
Okay, before I start in on your post I thought I'd mention that you might want to borrow someone's AOL account and check the board over there. They are scoring points against you right and left. In fact, I think everyone who is heavy in THQ should consider getting some sort of AOL access. That board remains the "ax" on THQI.
<<Indeed, it will be
the crowning achievement for a management team that has done a great job turning around a troubled company
by fully exploiting the growth in popularity of World Championship Wrestling.>>
As noted on the Fool, the turnaround came through executing a very conservative business model. The wrestling was a bonus that turned THQ into a monster grower, but it is funny how these kinds of happy accidents seem to follow Farrell around. I remember that first mention of the Rugrats license a year ago and thought nothing of it. Now we've got confirmed reports of TRU's selling 500 copies and Software Etc.'s selling 300 copies.
<<But what everybody also knows – even if they hate to admit it – is that virtually all of THQ's earnings are
coming from sales of WCW products. This is a problem – a big problem – because THQ's WCW license
expires in 12 days (on December 28), and subsequently will be turned over to Electronic Arts.>>
You weren't on the debate team, I assume? Because you really set yourself up with that 12 days to expiration stuff. I wonder why THQ is going to ship a million copies (IMO) of WCW Thunder on January 12 then? All of us here know that it's much more accurate to say that the license runs out June 30. Boy, it's not going to be a fun six months for you, seeing multiple THQ wrestling titles near the top of the sales charts, along with Rugrats N64, possibly Shao Lin, possibly Excession ...
And THQ has three other hits this quarter in Rugrats PSX (high margin), Bug's Life GB, and Rugrats GB. There will likely be a spot in THQ's earnings press release that shows non-WCW revenue growth to be huge. Which did better? Ghost in the Shell and Vs. or Rugrats and Bug's Life?
<<Regarding Quest, there will never be another “first role-playing game on the N64.” Indeed, Quest 2 (if there is
one) will face much stiffer competition. Moreover, the original Quest still hasn't sold anywhere close to the
nearly 400,000+ units that THQ shipped during the second and third quarters. (Now you know why provisions
for returns and discounts were so high at September 30.) And, interestingly, THQ management has decided
against introducing Quest on the PSX platform – hardly the vote of confidence one would expect for a key THQ
“brand.”>>
There is a Quest2. It is called Nomenquest. This has been confirmed with THQ. I expect it in the fourth quarter of 1999, because that's when it is most needed. Your comments about Quest not selling nearly 400,000 is likely false. It was #7 in June and #12 in July and is now selling again in good quantity. Guessing what's happening from reserves is a very tricky game as Farrell is a master of managing these. In fact, don't the high reserves concern you, considering the massive sell-through the whole sector is seeing? These reserves are going to flow to the bottom line at some point, when most needed. Since THQ's inventory control is unmatched in the industry, that's up to another buck in earnings you are going to have to deal with at some point.
All the sales of Quest we've been seeing this quarter will help lower the WCW pct. And while Quest2 won't be the first RPG for the N64 anymore, it has a good shot at selling well because A) in all likelihood it will be a better game and B) Quest I, Zelda, and the larger than ever installed N64 base have increased the appetite for N64 RPGs.
Look at it another way, it doesn't help you if THQ ships 500,000 copies of Quest2 next Christmas even if it has to eat 200,000 copies at a loss later. Because 88-90% of the shipment will be accounted as sales in the fourth quarter and THQ has plenty of reserves to make up for any shortfall later. Don't you see how this game is rigged against you?
I've got no direct rebuttal for your no Quest on the PSX comment except to say that the Playstation market is more crowded and this is one of THQ's strengths--finding open niches. Look at AKLM--it's having a monster quarter and a lot of its games are N64 only. There's no Turok 2 for PSX, for instance.
<<As for Rugrats, it is not clear that THQ has the rights to this sequel.>>
Yes they do. We don't know what the length of the deal is, but THQ has stated that it will have sequels for the 1998 games in 1999. Ie, look for Rugrats 2 PSX and Gameboy in the fourth quarter. You get points for your comment about no movie tie-in and no guaranteed Sony support, but that's about it. After all, there's a chance Sony kicks in the ads again or bundles it with its console. And hey, sequels can sell better. Revenge sold more than NWO. Tomb Raider II sold a lot more copies than Tomb Raider I. It happens.
<< But GameBoy
revenues are declining this year due to the loss of the Madden sports titles and are likely to continue declining in
1999 as the transition to the color GameBoy will pressure software sales in general.>>
I was under the impression that the Color Gameboy can play all older titles, and is therefore bullish for a company like THQ that has a good back catalog of GB titles. GB sales should be great this quarter, again helping to drive the WCW-pct. down.
<<But wait! I haven't mentioned THQ's new WWF license. That will be huge, right? Well, that is the $64
question. It is certainly eye opening to track the recent sales trends of WWF Warzone for N64. Indeed, by
almost all accounts, Acclaim's Warzone is a technically superior product to WCW Revenge. But Revenge is
selling great, while Warzone, following strong initial sales, is now dying on the vine at the height of the
Christmas selling season. The reason? People simply like Turner Broadcasting's WCW better. For the next five
years, ERTS will have the WCW license, and THQ will have to share WWF with Jakks Pacific. That's not an
even trade – not even close. And don't think that Acclaim, GT Interactive and Midway won't also have
wrestling titles on the shelf next Christmas. In fact, the bigger question is whether JAKK-THQ will have a
WWF product out in 1999. If you were Acclaim, wouldn't you wait until the month before your WWF contract
expires (November 18, 1999) and then ship a huge number of PSX and N64 games into the Christmas channel?
This is certainly the strategy that THQ is pursuing right now as its WCW license is about to expire.>>
But wait! You have slipped your most egregious paragraph in near the end of your post. First, AKLM has said that its WWF games are expected to sell 2.5 million copies. If the games are slipping in sales, it is due to having been out for six months. Nature of the business. But you knew that, right? Second, WWF beats WCW in the ratings and has the momentum as its ratings grow and WCW superstars get old. WWF has just added two hours of national programming and is stronger internationally than WCW. Third, as Andy points out, Revenge is at least equal to WarZone in gameplay. Four, THQ has stated that it will have a WWF offering in 1999. I expect it to be N64 and possibly Dreamcast, with PSX version a certainty in Q1 2000.
Your thesis about THQ having no wrestling games in Q4 1999 is baseless.
<<In addition, it appears that while the revenues from game sales will be split evenly, the costs are being
borne disproportionately by THQ.>>
No. THQ is simply providing JAKK with a small loan that gets repaid out of revenues before splitting them up.
Thanks for the info on the insider sales. You were first to spot it, as far as I know. If all your facts were this good, you might have a better case. Btw, Farrell has hundreds of thousands of shares remaining. His sales aren't notable compared to M. Dell's, B. Gates' ...
How about one more post from you? What do you think about Brian "Mr. Conservative" Farrell saying that he expects THQ to grow 20% next year? I think he's sandbagging, as usual. Look at all the games that have been pushed back, for one. Shao Lin, IRC, even Yoda Stories.
Marc |
