THQ Q4 Highlights: Heavy Profit Loss, Big FY12 Expected

THQ released their financial figures for the end of fiscal year 2011 yesterday. Among the highlights (all numbers in USD):

* Q4 GAAP sales (I.E.: accepted revenue) were down from Q4 of FY10, coming in at $124.2m versus $197.7m for last year. However, THQ made a note of stating that non-GAAP figures of $248.6m was consistent with guidance. The company lost $44.1m for Q4 of FY11, compared with $10.4m for FY10.

* Four quarter results for FY11 were also poor for the company. THQ lost $136.1m on GAAP sales of $665.3m, up from a $9m loss on $899.1m revenues from FY10.

* Despite the bad news, THQ CEO Brian Farrell was bullish on the success of Homefront and the uDraw tablet. Homefront – which received mixed reviews from the press – has shipped 2.6m units, which Mr. Farrell called “a solid start for this new franchise”. Mr. Farrell also announced that exclusively designed uDraw tablets would be available for the Xbox 360 and Playstation 3 consoles in time for the holidays.

* Other franchises sold well. The WWE branded games Smackdown vs. Raw and All Stars shipped a combined 4m units, though sales for each individual game are unavailable at this time. UFC Undisputed ’10 shipped 3m copies.

* It was announced that the company would be bringing games built around Jimmy Buffet’s Margaritaville to Facebook and iOS in FY12.

* Mr. Farrell made it clear that he expected FY12 to perform much better than FY11 did:

“We expect to generate significant growth, profitability and cash in fiscal 2012, driven by the latest installments of multi-million unit selling franchises, Saints Row, Red Faction, Warhammer 40,000, MX vs. ATV, UFC, WWE, and uDraw. We are creating a digital ecosystem for each of these games that will continue to keep consumers engaged and generate additional revenue opportunities beyond the initial retail sale. We also continue to aggressively invest in our digital initiatives, including online social and mobile offerings as well as our Warhammer 40,000: Dark Millennium Online MMO.”

* In a conference call after the financial data was released, THQ executives talked up the company’s growth strategy for FY12, talking up core franchise updates for Saints Row 3, Red Faction, Warhammer 40,000 and the UFC and WWE franchises among others, as well as casual content on their uDraw devices. They also discussed a “digital ecosystem” which incorporates paid downloadable content, online passes for pre-owned purchasers, and in-game stores and avatars. Said ecosystem will generate 25 to 40 percent of a game’s revenue. Finally, it was noted that the license for Warhammer 40K was extended past 2013, though it wasn’t stated how long the deal was extended.

The full statement to investors can be seen at the THQ Corporate site here.

Analysis: You have to give a bit of credit to THQ for being financially rewarded for taking a chance on a brand new IP like Homefront. Though critics weren’t high on it – I personally thought it a middling shooter in a sea of superior products, and that the premise was done better by Half Life 2 – it managed to sell high numbers and was extremely profitable. You don’t see Activision taking these kind of chances nowadays.

On the negative side of things, it’s depressing to see that virtually every major publisher now has online passes incorporated into their earnings statements, and see them as a critical driver of revenues. It’s not so painful for games like Saints Row 3, which have enough playability to last people years, but it’s less acceptable to see them applied to yearly franchises like the WWE brand games, which are made around the ideal of planned obsolescence. On the positive side of that token, THQ has historically been the least painful of the major companies, as they’ve been very upfront and have tackled the issue head on. Sony – the company that routinely puts $20 online passes on PSP games without even announcing them beforehand – should take some notes.

Overall, the next year will be absolutely critical for THQ. It’s unclear how the stock market will react to these results at this time – more will be known on that once the markets close later on today – but investors don’t like seeing red numbers, and $136.1m is a very red number. Brian Farrell’s put his chips onto the table here: he’s calling for FY2012 to be profitable, after years of losses while THQ has built themselves into a premier publisher. If he’s wrong, it likely means he’s out, and it could have an impact on THQ’s status as a AAA publisher, much in the way Disney Interactive’s focus shifted hard.

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Christopher Bowen

About Christopher Bowen

Christopher Bowen is the Editor in Chief of Gaming Bus. Before opening Gaming Bus in May of 2011, he was the News Editor at Diehard GameFAN, a lead reporter for DailyGamesNews, and a reviewer at Not A True Ending, also contributing to VIMM, SNESZone and Scotsmanality. Outside of the industry, he is a network engineer in Norwalk, CT and a veteran of Operation Iraqi Freedom.