THQ will get $10 million from Elephant this year, says analyst

By Patrick Garratt, Wednesday, 2 April 2008 16:56 GMT

Lazard Capital analyst Colin Sebastian reckons THQ will net at least $10 million in revenues this year from it purchase of Elephant Entertainment, announced yesterday. From a just-published research note:

Acquisition provides boost in fast-growing casual game market. Yesterday, THQ announced the acquisition of the Elephant Entertainment casual and online game business. Terms of the deal were not disclosed; we expect the 20+ new games from Elephant in 2008 to add at least $10M in revenues.

More after the link.

* Acquisition provides boost in fast-growing casual game market. Yesterday, THQ announced the acquisition of the Elephant Entertainment casual and online game business. Terms of the deal were not disclosed; we expect the 20+ new games from Elephant in 2008 to add at least $10M in revenues.
* Casual games are a natural fit with THQ’s mass-market portfolio. We estimate that the market for casual games exceeded $1B in North America in 2007 and was more than $2B worldwide (PC and online). Importantly, as the video game market appeals to an increasingly broad consumer audience, we believe casual games represent a key growth driver for traditional publishers, such as THQ. In addition, we see casual games as a natural fit with THQ’s existing mass-market product lineup (e.g., Nickelodeon, Pixar, Bratz, etc.).
* THQ also partnering with industry leader Oberon Media. As part of the acquisition of the Elephant business, THQ also announced an exclusive retail publishing agreement with Oberon Media, one of the leading casual game companies. THQ/Elephant will publish a number of Oberon’s online games in the retail channel beginning this year.
* Initial F2009 EPS guidance could be conservative. While overall industry sell-through trends remain positive into April, according to our checks, we believe that THQ may initially set a conservative tone for F2009 based on the number of new or infrequent franchises in the product lineup this year (e.g., Red Faction, Saints Row and UFC). We will formally preview the q uarter and outlook for the video game publishers in the coming days.
* Risks. We believe the biggest risks include initial guidance for F2009, the future of the Pixar license, and ongoing WWE-related legal issues.
* Our price target of $31 is based on 25x our F2009 EPS target of $1.23, in line with comparable company valuation multiples.

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