THQ reported net $1,030.5 million for the 12 months ending March 31 2008, a slight increase on the $1,026.9 million in sales the previous year (and the companies 13th consecutive year of growth). However, THQ (NSDQ: THQI) reported a net loss of $35.3 million, or $0.53 per share compared to a net income of $68.0 million, or $1.01 per diluted share in fiscal 2007. THQ President and CEO Brian Farrell said that the company has three key initiatives to improve matters in 2009: a stronger slate of products; initiatives to improve product quality and competitiveness, and a change in cost structure to “generate significant operating leverage”. THQ projects net sales of between $1,175 million to $1,200 million for the next fiscal year, with operating margins “in the high single digits”.
Q1: For the first quarter of 2008 THQ reported net sales of $187.0 million, up from $172.1 million a year earlier. However, there was weaker-than-expected sell through of some of its previously released titles, which resulted in greater-than-anticipated price protection and reserves, as well as increased software amortization expense during the quarter. Therefore, THQ had a net loss of $34.5 million or $0.52 per share for the quarter, compared to a net income of $6.5 million or $0.09 per share a year ago. For the next quarter THQ expects net sales of $115-125 million and net loss per share of $0.38 to $0.42 due to a weak product release schedule.
In specific-game news, lifetime shipments of THQ’s games based on Nickelodeon and WWE each surpassed $1 billion.
Mobile: The percentage of THQ’s revenues that came from mobile games fell from 2.6 percent in 2007 to 1.9 percent in 2008. For the first quarter mobile made up 2.8 percent of THQ’s revenues, up from 2.5 percent a year ago.
From the conference call:
Farrell said that some games like Juiced, Stuntman and Conan “were simply not competitive”, and the bottom line was further hampered by the fact that THQ spent heavliy to promote these games. THQ has instituted a system involving increased depth and frequency of product reviews to try and combat this, and will cancel products that do not meet financial objectives. The kids market — a bastion for THQ — was incredibly competitive in 2008 according to Farrell, more than they’d seen previously.
THQ is also seeking new revenue streams through digital distribution, the showcase being a deal with Shanda (NSDQ: SNDA) to launch Company of Heroes online in China in 2009, on a free-to-play micro-transaction model. “we think there is a future in the free-to-play pay-per-download model, so this is the first of many deals,” said Farrell.
This year THQ spent $87 million on licenses compared to $91 million last year. The company plans to increase its internally owned IP from around 30 percent to just under 40 percent.