Event:
THQ (THQI, Sector Perform) hosted its E3 analyst event on Tuesday afternoon
Conclusion:
Positive. THQ announced it has shipped 2M units of UFC so far, which is better than our quarterly estimate of 1.9M. We’ll need to revise our forecast modestly higher as we approach the end of the quarter and we can better assess the success of its two other big Q2 releases: Red Faction and Up
Our Q2 sales estimate is above the Street already, so we believe the Street is also low. We are approximately $0.05 below the Street on EPS, which is a bigger question and we are not yet convinced that they will beat the Street forecast given the expenses associated with the launches of these three games.
The remainder of THQ’s announcements were not as impactful. It highlighted its slate for this year, which had been shown to the press in some detail already. While it expressed satisfaction with Red Faction and Up it did not give any quantification.
A note on EA’s new game MMA:
We had a chance to ask EA in our small group meeting about its plans with MMA, the new competitor to THQ’s UFC game. A few key points:
Has been looking at MMA since Peter Moore, the head of EA Sports got to EA in 2007 and a team came quickly together at EA Tiburon. Obviously given the release date, development is well underway
They will have rights to fighters on an individual fighter basis. Some will be exclusive to UFC (the one’s that Dana White has rights for) but many will be negotiated on a fighter by fighter and manager by manager basis
EA doesn’t expect to compete on day one with quality that equals the second UFC, but instead intends to build the franchise over time
It envisions releasing the game every two years, with the release of Fight Night in the other years. This lends to our theory that EA moved up Fight Night to try to put more competitive pressure on this years UFC.
Electronic Arts says it has long-term interest in this space and it will be around for a while. We continue to believe that it will be difficult for them to compete with THQ, but that EA will aggressively pursue the UFC license and either take it or make it more expensive for THQ somewhat limiting the profitability opportunity for THQ. The opportunity is still large, but not as epic as it could have been.
UFC should certainly be a positive catalyst for THQ. Unfortunately, we have not heard the same positive commentary about its two other June-quarter games: Up (the next Disney-Pixar film) and Red Faction: Guerrilla. We currently expect 1.1 million and 900,000 units, respectively. We will see how estimates shake out for these titles as well.