THQ (NASDAQ:THQI) reported earnings for the first quarter after yesterday's bell. How did things turn out for the video game maker?
Well, from a GAAP standpoint, not hot at all. Revenues declined 12% to $138.8 million. The operational loss increased 168% to just under $21 million. And the net loss tripled to $12.1 million, or $0.19 per diluted share.
What a disaster, huh? Let's go through some positive points of the earnings release. Total costs and expenses dropped nearly 4%. The licensing deal for Disney's (NYSE:DIS) Pixar cartoon Cars paid some nice dividends -- according to the release, sales were even better than the company had hoped for. Plus, the game is beating the performance of previous Pixar titles Finding Nemo and The Incredibles. That's impressive, as is the fact that THQ intends on bringing the popular game to Microsoft's (NASDAQ:MSFT) Xbox 360 and Nintendo's Wii -- a great brand like this will surely stake some ground for THQ in the next-generation marketplace.
That's going to be the important thing going forward. When Sony (NYSE:SNE) releases its third PlayStation unit in November, the next-generation cycle will start to rev up. THQ has a strong collection of properties, including games based on Viacom's Nickelodeon characters and World Wrestling Entertainment's superstars, as well as edgy original franchises such as Destroy All Humans!. As the company rolls out titles to the new systems, the sales revenues will grow over time. THQ, like Electronic Arts (NASDAQ:ERTS), is one of the significant players in this space; still, patience is a virtue, and investors must wait until the installed user base for all the next-generation consoles to reach critical mass. That will take some time, since the real catalyst for consoles is the eventual reduction of prices. For now, publishers are mired in losses as the transitional phase continues; consumers are, simply put, dramatically reducing their spending on current-generation products (as well as pressuring software publishers to lower their prices).
Investors with a long-term horizon stand a good chance of harvesting value from their portfolio with THQ. Over the next couple of holiday seasons, the publisher should move a lot of software. Of course, many publishers -- the aforementioned EA, Take-Two Interactive (NASDAQ:TTWO), Atari (NASDAQ:ATAR), etc. -- should benefit, but investors will want to be with stronger concerns such as EA and THQ. You can definitely forget about Atari.
I recently wrote a bullish article on THQ. I still think it makes a compelling investment idea going into the console cycle, although the stock has risen a bit since that piece. I'd reiterate that initiation of a position followed by dollar-cost-averaging might be a prudent paradigm. You could also wait for a pullback. No matter what, though, you'll want to do some due diligence on companies in this sector, since they are ripe for price appreciation over the long-term.
The Fool has you covered when it comes to video games:
- THQ Slings It
- THQ: Should You Play?
- Take Two Subpoenas and Call Me in the Morning
- Atari on Its Last Life?
Disney and Electronic Arts are recommendations of Motley Fool Stock Advisor , where Tom and David Gardner are always on the lookout for the market's best investments. Try it out for yourself -- it's free for 30 days .
Microsoft a Motley Fool Inside Value recommendation.
Fool contributor Steven Mallas owns shares of Disney. The Fool has a disclosure policy .
