THQ Draws a Bad Hand

THQ (Nasdaq: THQI  ) is finally realizing there are two types of gamers.

It has always known that Wii owners are an artsy lot. The software publisher shipped 1.2 million copies of its uDraw tablets for Nintendo's (OTC: NTDOY) hands-on console during last year's holiday quarter. The move was supposed to open the door for the sale of future titles that took advantage of uDraw's tablet and stylus.

Last month it introduced uDraw for Microsoft's (Nasdaq: MSFT  ) Xbox and Sony's (NYSE: SNE  ) PlayStation 3. This is the other gaming camp. We're talking about a mostly male audience that enjoys multiplayer combat simulations. In short, they wouldn't be caught dead playing Pictionary.

THQ is now stating the obvious. It's just not selling a lot of uDraw systems for the Xbox 360 and PS3. It now sees revenue for the telltale holiday quarter clocking in 25% below the $510 million to $550 million that it was originally targeting for the period. Its other two notable releases this quarter -- Saints Row: The Third and its latest World Wrestling Entertainment (NYSE: WWE  ) installment -- are selling well, but that only emphasizes how badly uDraw is doing.

We're now three years into an industry funk, and THQ has shed nearly two-thirds of its value in that time. Leaders Activision Blizzard (Nasdaq: ATVI  ) and Electronic Arts (Nasdaq: ERTS  ) have actually moved higher over the past three years, but the market was coming off depressed levels at the time.

THQ is getting slammed today and rightfully so. It picked the wrong quarter to fall short. The news also kills any hope of the uDraw ecosystem being a big winner in the years to come. THQ will need to come back with something else, and hopefully this time it has a firm grasp of the two distinct gaming audiences.

I guess it's back to the old uDrawing board.

The Motley Fool owns shares of Microsoft and Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Microsoft, Activision Blizzard, and Nintendo; creating a synthetic long position in Activision Blizzard; and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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