Is THQ on its Last Leg?

John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Time has not been kind to THQ Inc. (NASDAQOTH: THQIQ). Once a powerhouse in the gaming industry, the company has suffered through a number of bad business decisions which left it barely alive. Stock prices have dropped to around 50 cents per share and show few indications of a turnaround anytime soon. Unlike Activision Blizzard (NASDAQ: ATVI) whose recently-announced layoffs appear to be more a result of internal restructuring than a desperate need to cut costs, THQ appears to be in serious trouble.

NASDAQ issued a notice to the game publisher recently, setting a deadline of July 23rd for the company to get its stock prices over the $1 mark for 10 consecutive days or it will be delisted. As if this wasn't bad enough, fitness company Adidas has recently filed a breach of contract lawsuit against THQ as a result of the company's failure to deliver a software title contracted as an expansion of Adidas' "miCoach" product line.

So how did THQ get to this point? Oddly enough, one of the major culprits in the company's downfall was the unexpected success of one of its products.  The uDraw tablet for the Nintendo Wii was a top-selling accessory during the holiday season in 2010, so THQ began expanding the uDraw product line to include Xbox 360 and PS3 products as well. Unfortunately, a lack of interest on these systems coupled with a small library of compatible games turned one of the hottest accessories of 2010 into one of the most disappointing accessories of 2011.

Can THQ turn things around by their July 23rd deadline? It's possible, though they'll have to make a much stronger showing with upcoming in-demand products than they have thus far. The company recently cancelled its licenses for children's games and movie adaptations, claiming that it wanted to focus on "core franchises" such as its Warhammer 40k games, wrestling and fighting titles, and the upcoming sequel to Darksiders.

Unfortunately for THQ, very little has been shown to instill consumer confidence in its releases. WWE and UFC games are being released, Saints Row: The Third is still releasing DLC and Darksiders II is well into production. Other franchise games such as Dawn of War 3 and Company of Heroes 2 aren't doing so well, however, having only been hinted at despite multiple claims that led fans to believe one or the other would be officially announced at major gaming events. The anticipated Warhammer 40k MMO Dark Millenium Online may not be released at all if THQ can't find a publishing partner to help offset some of the game's expense, and the Red Faction series has been shelved indefinitely. If these are the franchises that are supposed to be THQ's focus then the company needs to move quickly to ensure that the fanbases don't get tired of waiting and move on to other interests.

If THQ does manage the turnaround, of course, then it could become a prime opportunity for investors who want to get in while prices are low. That isn't to say that the company will recover its former glory even if it does manage to stay listed with NASDAQ; bankruptcy, a buyout or the selling off of major studios or licenses could still occur even after an initial turnaround. Until THQ shows that it's making a strong recovery and that its putting the quality into its core titles that its customers want to see, it's unlikely that investors will start showing confidence in the company... at least not in the numbers that the company needs them to.


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