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THQ stock drops by more than 50% following game delays and poor earnings report

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Following it’s quarterly finance report in which THQ announced it would be delaying Company of Heroes 2, Metro: Last Light, and South Park, as well as suffering a $21 million loss, the publisher’s stock dropped in value by 50.33%. This has caused speculation for one analyst as to the publisher’s future.

The analyst in question isWedbush Morgan’s analyst Michael Pachter, speaking to Gamesindustry.biz, he said”Should its financial position continue to deteriorate, we expect THQ to raise financing through an equity sale that could lead to dilution of existing shareholders.We expect creditors to be asked to renegotiate terms at a discount; if they are unwilling, bankruptcy is possible.” What he’s saying is that because THQ now has no big titles due for release between now and March, games that would draw in enough money for the company to sustain itself, they may be forced to seek investors by selling a percentage of ownership in their company. Pachter then predicts this could lead to bankruptcy because when a company sells part of its ownership it devalues its shareholders’ stock. Shareholders tend to sell before they’ll see their stock devalued.

However, that is all Pachter’s opinion. An informed opinion, but opinion and speculation.

What we can say with certainty is that the events of the last day has led to a significantdrop in share price. We can see from the Google Finance graph that between 4pm yesterday and 4pm today THQ’s stock dropped from $3.02 a share to $1.50 a share, which suggests a loss in investor confidence:

What this means for the games we’re looking forward to is that THQ needs to make it through to March without declaring banruptcy. While it looks terrible at the moment – and with a graph like the one above, it’s easy to suggest it’s the end of days for the publisher – it’s worth looking back just a few months to the bump in share prices the earnings report following Saints Row 3 brought, as well as the pre-release cycle of Darksiders 2:

That’s from $0.50 a share to $5.79 in two days. So what we’re seeing currently is not the death of a publisher, necessarily.

Update: If you scroll down to the comments you’ll see me being schooled in economics by GamerBiz. This is what they’ve pointed out:

“That jump happened because of a reverse 10-1 stock split. This was done to reduce exposure and the number of shares out on the market. Most importantly, this was done otherwise THQ would have been delisted from the NASDAQ already for failing to meet the $1 per share minimum to remain listed.

If you had 1,000 shares of THQ on that date, @ $.50 a share, the reverse split converted it into 100 shares @ $5. Consequently, THQ shares since the reverse split have dropped from over $5 to $1.50. So, there are 10x less shares on the market than before, and those shares have dropped in price by nearly 90% Things are NOT good for THQ and their stock IS in fact plummeting.”

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