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Analyst: THQ Could Run Out Of Cash By Q1 2013
Analyst: THQ Could Run Out Of Cash By Q1 2013
December 8, 2011 | By Eric Caoili

December 8, 2011 | By Eric Caoili
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Reacting to THQ's lowered revenue guidance for the third quarter, Wedbush Securities analyst Michael Pachter predicted the publisher will suffer a "substantial loss" for the current fiscal year and may run out of cash by the first quarter of the next.

THQ reported lower than expected sales for its uDraw GameTablet line on Tuesday and lowered its third quarter (October through December) guidance of $510 to $550 million by around 25 percent, bringing it down to $383 to $413 million.

Though the publisher did not update its $925 million to $1 billion guidance for the full 2012 fiscal year (ending March), Wedbush forecasted that "the magnitude of the Q3 miss suggests a large downward revision."

Pachter pointed out that if this becomes another unprofitable year for THQ, it would be the company's fourth in the last five years. He added that its cash balance would "become an issue if it is unable to turn a profit in the first half of FY:13."

"Given its declining licensed and core properties (apart from Saints Row), and an uncertain release schedule next year, we remain unconvinced that FY:13 will be profitable," said Pachter.

"We think its cash position may be compromised. The company's debt covenants suggest to us that its line of credit must be repaid to avoid default, and we think that THQ is at risk of running out of cash by the June 2012 quarter."

Cowen & Company analyst Doug Creutz also weighed in, reducing THQ's full-year revenue estimate to $844 million. Despite the Q3 miss and Pachter's concerns, he did not believe the publisher is in any imminent balance sheet danger.

The investment firm, however, did express that THQ's "revenue downside was even worse than [it] had feared", and that there could be more problems around the uDraw GameTablet than the publisher is letting on.

"Management blamed poor sales of uDraw on the Xbox 360 and PlayStation 3 for the miss," said Creutz. "However, the $130 million-ish revenue downside suggests that there was likely some incremental weakness elsewhere."

Creutz continued, "At a roughly $50 ASP for uDraw across all platforms (including the Wii), it would take a 2.6 million unit shortfall to account for the full revenue miss; THQ's planning implied less than 2.6 million units of total uDraw sell-in."

Pachter concurred on that matter, "We note that the Q3 miss reflects a shortfall of almost all of the 2.3 million uDraw units we modeled, suggesting that either guidance is overly conservative, or that there is a bigger as yet undisclosed problem."


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Comments


Nothing But Homeruns
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What's going on at THQ is all about senior management. End of story.



Here's the tale of the tape since Danny Bilson took over as EVP and started adding his own special brand of magic to the projects.



Metacritic scores:

Homefront – 70

Red Faction: Armageddon – 71

Space Marine – 77

THQ’s stock price when Danny Bilson was hired – $18-19.00

THQ’s stock price now – 1 to 3 - about a 92% drop



Stock price today - http://finance.yahoo.com/q?s=THQI ($0.95 cents)



Wake. Up. People. Until those in charge are forced to leave - nothing will change there. Ever.

Brian Holinka
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I feel like I've seen this somewhere before...

Allen Brooks
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Looks like it's Danny's turn for the thousand-yard stare.

Nothing But Homeruns
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the big question is - what do you do when there is no one left to throw under the bus...

Allen Brooks
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It'll depend on a few variables: what happens with the Warhammer MMO that they've sunk ungodly amounts of $ into; when/if the Online group realizes that they have no idea what they're doing and rejiggers themselves into some kind of social skunkworks, and what kind of madness Patrice is working on up in Montreal.



If I were them, I'd liquidate every remaining US asset and relocate to Montreal, where the syrup is mapley and the poutine comes with a side of government tax breaks. Then I'd huddle together with the remaining survivors in my secluded frozen palace, slowly bleeding resources, until the stark Canadian sky fills with white winter and the memory of the random acronym that is THQ fades from this world.



Also in this scenario Bilson would be working for Zynga at this point, making a big media fuss about how he's going to "take social gaming to the hardcore gamer" with "fresh ideas" on how to quickly and efficiently lose massive sums of money.

Harry Fields
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/applaud

Nothing But Homeruns
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1. I think Vigil now realizes it's up the creek as the execs at THQ killed the entire Online group ages ago (again);

2. Warhammer should have been cancelled years ago - many credible people agree;

3. The core issue is - no credible long term plan that is rational and mass exodus due to a complete lack of confidence in the leadership.

4. As for Danny and his burgeoning social games career - go have a look at Margaritaville - that is 100% his brainchild and a great example of how he really "gets" that space.



Exclusively home runs.

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Maria Jayne
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Not looking good for the Future development of Dark Millenium Online....I was fully prepared to drop everything and throw money at that.

Sherman Luong
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Space Marine and Kill Team where one of the few games I actually did enjoy this year. THQ has put quality to the games but lack the firepower to get people to buy them.

Nothing But Homeruns
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What I enjoy are long authoritative and yet wholly speculative analyses about "what's wrong with THQ" by people that have really, no idea whatsoever, about what the root causes of THQ's problems are. THQ has been in trouble since about 2007 - what you are seeing is the tail end of a long, painful decline that is the result of both neglect, ego and systematic mismanagement by the senior executive.



There is no clever secret here folks - it's the people RUNNING THE COMPANY. This is not about market conditions, this is not about any specific gamble they took - it's about having egomaniac children running a a company with enormous potential systematically into the ground and putting hundreds of talented people out of work. It's disgusting to watch and totally unnecessary and, believe me, nothing will change.

Nothing But Homeruns
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http://www.google.com/finance?q=thqi - 0.80 cents flat today. You folks still think this is about UDraw. Really?

dude od
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There is a vast amount of decay with in, not just THQ corporate, but right down to the studios. The constant bleeding of experienced professionals since 2007 has left many of the Dev teams loaded with very inexperienced individuals being placed into critical mid management rolls, ( art directors, leads etc ), this a big part of the reasons seeing mid 70's metacritc scores and over spending on amateur quality products. There are examples of DEV testers, that right game testers, moving up into Producers positions in a few short years, and while there's nothing wrong with experience and moving up, working as DEV tester is not a substitute for Business or Management Degree and years of experience in managements rolls. UDraw is just a symptom, COH online was just a symptom, Dark Millennium is another symptom. It unlikely THQ can pull out of this current slide or will be bought out, and there is nothing to buy out except 2 mid level properties, Saints Row and Darksiders (they might have something from THQ Montreal, but what are the chances this will be ground shaking), everything else is just a license with owners.


none
 
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