Incredible Q3 results see THQ beating all estimates

Strong sales of licensed titles including The Incredibles, SpongeBob SquarePants and WWE SmackDown Vs RAW have driven THQ's results for the holiday quarter skywards, with the firm reporting revenues of $400 million.

The firm's earnings per share for the quarter were $1.58 (including a once-off tax credit of $0.20), massively ahead of the street estimate of $1.15, while revenues were over $60 million ahead of most analyst expectations.

The bottom line net income for the firm was $55.1 million, up 82 per cent from $30.4 million in the same quarter last year, on revenues which grew almost 37 per cent year on year, driven largely by the performance of the three key franchises.

In general, analysts have reacted very positively to the results - which came as THQ revealed its plans for new games based on The Incredibles and SpongeBob SquarePants this year.

Wedbush Morgan analyst Michael Pachter upgraded the firm's stock from Hold to Buy and its price target from $22 to $37, admitting that "we underestimated the strength of THQ's licensed portfolio, and the company exceeded our expectations in almost every meaningful metric."

TerraNova Institutional analyst Boris Markovich also lifted the stock to a Strong Buy rating, but a note of caution was sounded by Banc of America Securities, with analyst Gary Cooper commenting in a research note that "3Q05 results were 'incredible', but FY06 will pose many challenges for THQ."

He pointed to the lack of Pixar or SpongeBob movies in the next year, along with increased competition in the handheld market and the ongoing litigation with the WWE as possible causes for concern in the 2006 financial year, and argued that "too much can/will occur during the next 2+ years in the video game industry to base our investment thesis for THQ on FY07 results."

In contrast to the other firms who commented on the results, Banc of America Securities is continuing to rate THQI stock as Neutral, with a 12 month target of $21.