THQ reports strong Q4 and record full-year revenues

Publisher THQ has announced its financial results for quarter four and fiscal 2005, with the company reporting a record year for both revenues and profits as sales topped $756 million and net income hit $62.8 million.

That represents an 18 per cent growth in net revenue, with net income up by a massive 75 per cent, while the fourth quarter results are equally impressive - with net sales up 40 per cent to $171.9 million and income up 86 per cent to $10.1 million.

Revenues in the fourth quarter were driven largely by the success of two titles - MX vs. ATV Unleashed, and movie licensed game The Punisher, but for the full year, the key brands for THQ remained Disney/Pixar, Nickelodeon and World Wrestling Entertainment.

That heavy reliance on third party intellectual property is the biggest weakness of THQ at present, according to analyst Gary Cooper at Banc of America Securities, who believes that the lack of internally developed franchises sets THQ apart from publishing rivals such as Activision and EA.

"THQ has released several owned IP titles that have met with some success," Cooper noted, "including the Tak and MX series of games, but it really has been four years (since the first Red Faction) that THQ has delivered a title that can be called a blockbuster."

"More often than not, THQ's efforts to develop IP have met with disappointment," he continued, noting Dark Summit and Sphinx as examples of this trend at the company.

However, the firm has ambitious plans for the creation of new intellectual property in FY2006, and while its guidance for the coming year is flat in terms of revenue - projected to be around the $750 million mark - the company has more than doubled its internal development capacity, and plans to make its mark in the next console cycle with new franchises far earlier than it did in the current generation.

In particular, the company has a number of new franchises planned for launch in the coming months, and two brand new titles from well-regarded developers Volition and Relic planned for Xbox 360, as CEO Brian Farrell explained in a statement today.

"Consistent with our goal of increasing share against the core gamer," he commented, "we plan to launch a select number of exciting new original properties including Destroy All Humans!, Juiced and two new original franchises for Microsoft's next-generation Xbox platform."

Cooper, who is retaining a Neutral rating on THQs stock, is wary of placing too much stock in THQ's ability to create break-out hits from these franchises. "While we remain sceptical at this point at the breakout potential of any of the above titles, we never say never," he concluded.

Wedbush Morgan Securities analyst Michael Pachter, however, is more positive about the potential for THQ - maintaining a Buy rating on the stock, and stating in a research note today that he believes the company's projections for FY2006 are conservative.

"The company maintained its conservative forecast for software sales for calendar 2005 for overall US and Europe software sales growth to be flat," he commented. "These projections compare with our estimate of US software sales growth of 10 per cent."