AGOURA HILLS, Calif. (AP) — Shares of THQ Inc. sank Thursday after the video game maker lowered its holiday quarter outlook due to lower-than-expected sales of its uDraw Game Tablet.
THE SPARK: Late Wednesday, THQ said that although the game has been popular for use on Nintendo Co.'s Wii video game console, initial sales of the tablet and software for use with Microsoft Corp.'s Xbox 360 and Sony Corp.'s Playstation3 consoles have been weaker than THQ anticipated. The company's said its sales of other games such as "WWE 12" and "Saints Row: The Third" will likely meet or exceed the company's expectations and it will focus on driving sales of other key holiday products for the quarter.
For the fiscal third quarter, which ends Dec. 31, THQ now expects revenue will be 25 percent lower than its previous outlook for $510 to $550 million. That means it now expects revenue of $382.5 to $412.5 million — lower than the $523.8 million analysts polled by FactSet expected as of Wednesday.
THE BIG PICTURE: The holiday season tends to be the best quarter of the year for retailers and companies that offer consumer products. Video game companies bring in about 40 percent of their yearly revenue around the holidays, so the lower outlook is especially serious for THQ.
THE ANALYSIS: In a client note Thursday, Brean, Murray Carret & Co. analyst Todd Mitchell downgraded the stock to "Hold" from "Buy" and removed his $4.50 price target due to the reduced outlook.
Mitchell said the change is likely to mean the company has less cash on hand, which could make it harder for THQ to fund upcoming game releases. He said he is "hard pressed to think of a company that has mis-executed as often and to the same magnitude as THQ."
"We can fathom a scenario where by THQ emerges from this situation as a viable entity. However, given THQ's checkered history on this front, we would be foolish not to probability weight alternative scenarios, including the company's bankruptcy," he said.
A spokeswoman for THQ said the company could not immediately comment.
SHARE ACTION: THQ shares fell 46 cents, or 31.2 percent, to $1.01 in afternoon trading.