The latest report on the future of THQ from Cowan analysts Doug Creutz and Adam Noily concludes, most notably, that the growth of the company's owned IP outweighs any potential risks to its key licensed IP franchises.
Calling the company's strategy to develop owned franchises "intelligent", the analysts suggested the benefits of the approach are being overlooked in light of fears that it might devalue THQ's licensed IPs.
Concern over the potential loss of THQ's top franchises, Pixar, WWE or Nickelodeon (Take-Two recently announced
a partnership with Nickelodeon for key Nick Jr franchises) isn't entirely misplaced, the analysts noted, Pixar in particular.
Calling the worst case scenario one in which "the company loses the Pixar license at the end of the contract, loses the WWE license immediately due to the litigation, and has a 50% chance of losing the Nickelodeon license", the analysts warned against investor over-reaction to the threat.
Moreover, a careful strategy for owned IP will enhance those franchises' long-term viability, the analysts added, anticipating that the payoff of THQ's strategy thus far will be evident during the holiday season with the release of titles such as Company of Heroes, Destroy All Humans, Juiced, Stuntman
and Frontlines: Fuel of War
The analysts did reduce their fiscal 2008 estimates from $1.15 billion to $1.14 billion because of lighter-than-anticipated sales of Stuntman: Ignition
, which the analysts say is in line with the middle of management’s fiscal year 2008 guidance range. They added, however, that they expect the company's stock to outperform the market by 20% over the next twelve months.
"We think that THQ has done a good job of managing its owned IP titles, only iterating each game every two or three years rather than milking them on an annual basis," concluded the analysts. "We think this strategy promotes the development of more high-quality franchises with longer lifecycles, and prevents the company from becoming overly reliant on only a few key franchises, leading to healthier long-term prospects for THQ."