Net sales for the quarter rose 68% over last year to $240.2 million. Operating income was $14.8 million, a significant improvement over the operating loss of $3.4 million observed last year. Net income was $12.6 million, or $0.19 per diluted share including option expenses -- whereas last year, the company lost two pennies per diluted share. Excluding the effect of options, THQ took in $0.25 per share. Know what Wall Street thought this quarter was worth? It expected three pennies of profit per share. Talk about obliterating expectations!
Like two other major players -- Motley Fool Stock Advisor recommendations Activision
Besides having success with licensed products such as games based on Disney's
The holiday season will be kind to THQ. Shoppers will need to buy a decent amount of software to go along with the new systems so that recipients will have something to play on Christmas morning and beyond. And yes, the new consoles might be short in number this season, but don't let that get you down -- there are plenty of other platforms out there for THQ to make money with, including the hot Nintendo handheld devices. In time, the installed user base for the fresh hardware will build out.
THQ has upped its guidance since last summer. Back then, it was expecting earnings for fiscal 2007 to fall between a range of $0.90 and $1.00, not including $0.16 of stock-compensation expenses. Now, that forecast has been upgraded to a range between $0.95 and $1.05, not including about $0.18 of stock-compensation charges.
The stock has had a run-up since the summer, so it might not be as cheap as it was back then, but current shareholders shouldn't bail. Not only has guidance improved, but it also wouldn't make sense to bail on the company ahead of the console revolution. I would expect that THQ stands a good chance of beating expectations and raising guidance going forward. In other words, I think the stock has room to grow.
If you're not a current shareholder and the recent movement in the stock toward a 52-week high has you concerned, then be on the lookout for pullbacks. THQ will be growing earnings and cash flows over the next several years. The game has only begun. Granted, the presence of the informal stock-option inquiry remains, but I still think the company is a great investing idea.
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Microsoft is a Motley Fool Inside Value pick. Activision, Electronic Arts, and Disney are part of the Motley Fool Stock Advisor family of recommendations. You can try any of our investing newsletter services free for 30 days.
Fool contributor Steven Mallas owns shares of Disney and Activision. As of this writing, he was ranked 1,312th out of 12,147 investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out today! The Fool has a disclosure policy.