In August, I highlighted a list of several companies who could benefit from the new partnership between the Ultimate Fighting Championship and Fox (NASDAQ:NWS). THQ (THQI) appeared on that list as it holds the exclusive rights to create video games with UFC fighters. I recommended shares during that article at a price of $1.76. Since that time they have lost half of their value and are now trading at about a quarter of my then price target of $3.00 per share. The release of the newest UFC video game, "UFC Undisputed 3", puts THQ back onto my investing radar for the month of February, which will see a new game launch, and a reported earnings release.
"UFC Undisputed 3" will be launched in North America on February 14th and later that week in Europe on the 17th. The game will be available for the Playstation 3 and XBOX 360 platforms. In a fan vote current Middleweight Champion Anderson Silva was picked to be the cover athlete for the game. A demo play of the game was made available on January 24th featuring Rashad Evans and Phil Davis, who fought in a light heavyweight battle Saturday night in UFC on Fox 2. The game features over 150 UFC fighters and offers online play to gamers around the world.
The game has been offering special deals with pre-orders of the game. Buyers of the game on Gamestop (NYSE:GME) right now will receive The Contenders Bonus Pack, which features four fighters: Brian Stann, Nick Diaz, Phil Davis, and Mayhem Miller. Ordering the game on Amazon (NASDAQ:AMZN) will get buyers the Ultimate Knockout Artist Boost Pack. Pre-ordering the game at Best Buy (NYSE:BBY) will get buyers the Early Access Pack. Wal-Mart (NYSE:WMT) is giving customers who pre-order the game the Ultimate Fights: Knockout Pack. The game itself is also giving downloadable content, including playable fighter Alistair Overeem, to people who like the Facebook page for UFC Undisputed 3. The Facebook page currently has over 800,000 likes.
The UFC Undisputed 3 game is the current number fifteen bestselling game (XBOX 360) for pre-orders in the United States. Video game site vgchartz.com has the XBOX 360 game listed with 92,210 pre-orders as of January 21st. The Playstation 3 version of the game comes in at number twenty with 81,911 pre-orders. Together the third game in the Undisputed series has 174,121 copies already sold three weeks before release.
The previous UFC Undisputed games saw mediocre sales around the World and this version of the game should blow those numbers away. The chart below shows sales data (in millions) from previous games. (Sales figures from vgchartz.com)
|Game||Platform||North America||Europe||Japan||Rest of World||Total|
|UFC Undisputed 2||Playstation||0.69||0.35||0.02||0.18||1.25|
|UFC Undisputed 2||XBOX||0.79||0.27||0||0.11||1.19|
|UFC Undisputed 2||PSP||0.08||0.04||0||0.03||0.15|
THQ also launched a UFC Personal Trainer Game compatible with Nintendo Wii and the XBOX 360 Kinect. The game gives users the ability to train at home like professional Mixed Martial Artists with their virtual video game platforms. The game has sold 360,000 copies for the XBOX 360 and 90,000 copies for the Nintendo Wii. The numbers have not been huge for the game, but it gives the company a starting point in the interactive gaming market. Later in 2012, the company will also be launching Adidas miCoach, compatible with the XBOX 360 Kinect and Playstation 3 Move software. THQ has also started taking advantage of downloadable content with the personal trainer games. The first downloadable workout pack features Urijah Faber. The pack comes with five new workouts and 15 "hit the mitts drills". The download is free for people who already own the game. On January 31st, the company will offer the Cain Velasquez Downloadable Workout Pack for a price of 800 Microsoft (NASDAQ:MSFT) points. On February 21st, the company will offer the Jon Jones Downloadable Workout Pack for 800 Microsoft Points. This strategy has worked well for companies like Activision (NASDAQ:ATVI) who can draw out revenue from games months after their release with new content.
THQ was founded in 1989 and is home to the UFC games, WWE games, Saint's Row, Red Faction, uDraw, Homefront, and several other franchises. In 2007, the company posted over $1 billion in revenue, which was its highest total in company history. The company's shares have been beaten down over several years as the company restructures and cuts losing franchises. The Red Faction franchise was closed in 2011. Recently, the company also announced it would be closing its kids' gaming unit.
The 2012 lineup is important for a gaming company like THQ. The current lineup looks like this:
-Nexuiz (XBOX 360, Playstation 3, PC)
-Warhammer 40,000: Dawn of War III (PC)
-UFC Undisputed 3 (XBOX 360, Playstation 3)
-Metro: last Light (XBOX 360, Playstation 3, PC, Wii)
-Darksiders II (XBOX 360, Playstation 3, PC, Wii)
-South Park: The Game (XBOX 360, Playstation 3, PC)
-WWE Brawl (XBOX 360, Playstation 3, Wii)
-Brave: The Game (XBOX 360, Playstation 3, Wii, DS, PSP)
-Adidas miCoach (XBOX 360, Playstation 3)
Beyond the scheduled upcoming games THQ also has an active backlog. The inSane Trilogy, being created by Academy Award nominated director Guillermo Del Toro, will see its first release in 2013 in the survival game genre. A sequel to Homefront will be released in 2014. The original game sold over 2.2 million copies across the XBOX, Playstation, and PC platforms. Darksiders 2, Devi's Third and Metro Last Light are other games in the works for 2013.
THQ, like other platform video game companies, is pushing into mobile and social gaming as well. The company's UFC Fight Nation Facebook game is played by 70,000 monthly users. Margaritaville, a Facebook game, is played by 10,000 monthly users. In the last reported quarter, digital revenue for the six months was up 68%.
The third quarter earnings release is scheduled for February 2nd. Shares will likely see a big swing depending on how the earnings fare. The quarter will include revenue from Saints Row: The Third, uDraw, and WWE '12. THQ will be hoping to improve on the $0.65 earnings per share analysts expect. A year ago the company earned $0.37 per share in the third quarter.
Back in December of 2011, I predicted the top selling video games for 2012 in an article right here on Seeking Alpha. In my ten predictions and four honorable mentions, there were zero represented games from THQ. A good showing from UFC Undisputed 3 could place the game closer on the bestsellers list than I had originally thought. Between the two consoles, I think the game can sell 3.75 million copies.
I am actively pursuing buying shares of THQ. I think that this video game company has a lot of positives going for it with the UFC franchise. The negatives of closing the kids' gaming division have already been priced into shares. Shares trade at $0.72 which is close to their fifty two week low of $0.63. The past fifty two weeks have seen shares of THQ trade as high as $6.53. Shares of the gaming company traded above $30 in 2006 and 2007. THQ has $51.06 million in cash, representing $0.75 per share in cash alone. The debt load of $100 million is very manageable and could be cut in half with the company's cash alone. February has two key events with 3rd Quarter earnings coming on the 2nd and the release of UFC Undisputed 3 on the 14th. This could be the perfect time to buy this stock.
Disclosure: I am long ATVI.
Additional disclosure: I own shares of Activision Blizzard (ATVI). I may buy shares of THQ (THQI) in the next 72 hours.