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Analysts: THQ Turnaround Underway, Proving Time Ahead

Finally profitable on the back of its UFC franchise, THQ's turnaround is well underway, say analysts -- but the publisher still has a lot to prove before it can regain investor confidence.

Leigh Alexander, Contributor

February 4, 2010

2 Min Read
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Having finally demonstrated some profitability on the back of its UFC franchise, THQ's turnaround is well underway, say analysts -- but the publisher still has a lot to prove before it can regain investor confidence. The resolution of its long-standing dispute with Jakks over the WWE license is a promising part of the company's turnaround, says Wedbush Morgan analyst Michael Pachter. "With liquidity no longer an issue and its legal issues behind it, THQ is positioned to benefit from its turnaround," says the analyst. "The company should generate solid contribution from its DreamWorks titles, should see margin improvement from its new WWE license and its enhanced stable of owned intellectual property, and should see better operating leverage from its streamlined cost structure," he suggests. Thanks in part to stellar sales of UFC 2009: Undisputed combined with massive cost reductions, THQ recently posted a profit of $542,000 from a $191.8 million loss in that period the previous year. And analyst concerns that new IP Darksiders might be a money-loser for the publisher were alleviated when THQ revealed it had sold 1.2 million units. "We had been concerned that 'Darksiders' might be a money-loser for THQ based on our initial read of the channel, but based on the 1.2MM unit sell-in number we now think the title should at least break even," says Cowen Group analyst Doug Creutz. THQ said yesterday it is looking to Darksiders, Metro 2033, and Warhammer 40,000: Dawn of War II - Chaos Rising as its key revenue drivers going forward. Into 2011 and 2012, the publisher has already announced new titles in the Saints Row and Red Faction franchises. But Pachter is joined by Signal Hill analyst Todd Greenwald in taking a wait-and-see stance on the publisher's longer-term prospects. "While UFC has been a significant hit, we are skeptical that the rest of THQ's release slate will allow it to navigate this challenging environment and meet expectations," says Greenwald. "We therefore remain on the sidelines, and look to get more constructive at a better entry point." Adds Pachter: "In order for its shares to trade higher, we think that THQ must demonstrate sustainable profitability and growth."

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2010

About the Author

Leigh Alexander

Contributor

Leigh Alexander is Editor At Large for Gamasutra and the site's former News Director. Her work has appeared in the Los Angeles Times, Variety, Slate, Paste, Kill Screen, GamePro and numerous other publications. She also blogs regularly about gaming and internet culture at her Sexy Videogameland site. [NOTE: Edited 10/02/2014, this feature-linked bio was outdated.]

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