THQ lost money in its most recent first fiscal quarter ended June 30, thanks to a weaker line-up of games this year compared to past quarters.
The company’s flagship game, UFC Undisputed 2010, shipped more than 2.7 million copies. But there weren’t enough other titles to make up for a strong quarter a year ago, when THQ launched UFC Undisputed 2009 and Red Faction Guerrilla. This year, there was no Red Faction title.
But THQ chief executive Brian Farrell said in a conference call today that the company has high hopes for its experiments in online game titles, from Company of Heroes Online to Warhammer 40K online. The Calabasas, Calif.-based company is one of the stalwarts of the U.S. video game industry, and its struggles reflect the same problems that all of the big console game companies are experiencing this year. The sales of console games are mixed, while the transition to online game sales is a tough one. The core business is weaker, and the promising new business isn’t delivering results yet.
Sales were $149.4 million. down from $243.5 million a year earlier. The net loss in the quarter was $30.1 million, or 44 cents a share, compared with net income of $6.4 million, or 90 cents a share a year earlier. On a non-GAAP basis, the loss was 21 cents a share. Analysts expected a non-GAAP loss of 24 cents a share.
The problem is that companies such as THQ don’t have enough big titles to even out their quarterly results. And the company’s reliable brands are among those that are getting lost in the shuffle in the current market, where big titles sell a lot but mediocre games are complete duds. Meanwhile, investments in online games have yet to pay off. For the year ending March 2011, THQ expects to break even on revenues of $845 – $865 million. THQ expects a second fiscal quarter loss of 60 to 65 cents a share, which will be worse than current Wall Street expectations. THQ shares fell slightly in after-hours trading.
THQ is making a big investment in digital online games. It will use Live Gamer’s virtual goods platform with its Company of Heroes Online game, which launches in September, as the company’s first major virtual goods title with a well-known brand. The company is also launching a number of iPhone, Android, Facebook, and online games on Xbox Live and the PlayStation Network. There are 15 titles coming this year for the iPhone and iPad alone. On top of that, THQ is working on its Warhammer 40,000: Dark Millennium Online massively multiplayer online game. That game will launch in fiscal 2013, which ends March 2013. Each new major console or PC game will have online content. The goal is to increase revenue, keep players engaged for a longer time, and reduce the negative impact of used game sales.
For the second half of the year, THQ expects stronger revenues than it had last year. It is launching big titles such as Red Faction Armageddon, Homefront, UFC Fitness Trainer, and WWE All Stars. For the long-term, THQ expects to launch a new title, Devil’s Third by developer Tomonobu Itagaki (developer of hits such as Ninja Gaiden), before April, 2013. Farrell said that the company’s strategy is to invest heavily in high-quality games, particularly those based on intellectual properties that will give it a leg up on rivals.
Farrell said that the Red Faction game will get a lot of free advertising with the launch of a related TV movie on the SyFy Channel on cable TV. The TV movie will debut in March, 2011, about the same time that Red Faction: Armageddon launches. That’s part of a plan to leverage THQ’s games across three screens: television, consoles/PCs, and mobile phones.
UFC Fitness Trainer will take advantage of the new motion-sensing systems from Microsoft and Sony, as well as the Nintendo Wii. The game teaches mixed martial arts exercises designed by real trainers. Farrell said the company is rethinking whether it should launch a new UFC title every year or if it should issue games once every 15 or 20 months. Farrell said there are a number games based on DreamWorks Animation movies as well as Marvel’s upcoming Super Hero Squad TV show. Farrell says THQ has a new unidentified game that will be announced next week for launch this fall.