THQ Wags the Dog

THQ (THQI Quote - Cramer on THQI - Stock Picks) may be a pipsqueak compared with Electronic Arts (ERTS Quote - Cramer on ERTS - Stock Picks), but on Wednesday, the video-game publisher's words seemed to resound louder than those of the industry's giant.

The words from both companies were all about holiday expectations. EA announced after the bell Tuesday that its results in the current quarter were likely to come in "well below" its previous outlook and Wall Street's expectations. In contrast, before the bell on Wednesday, THQ reaffirmed its own guidance for the holiday period.

EA is the dominant player in the industry; its results often mirror that of the game business as a whole. But on Wednesday, investors seemed to take their cue from THQ. In recent trading, shares of the company were up more than 7%. While EA's stock was off slightly -- a big change from a sharp selloff after hours on Tuesday -- shares of the other major publishers were up.

The market may have just been looking for something to rally on in the games sector. To date, most of the news in the sector this holiday season has been downbeat.

In addition to EA, Activision has also issued an earnings warning in the last week. Leading game retailer GameStop last month slashed its sales guidance. And industry research firm NPD reported that game sales in November fell 18%, marking the third straight month of disappointing results.

As part of EA's warning, company officials predicted that industry sales could decline as much as 10% in North America for the year, thanks to the soft holiday season. EA's own sales this holiday season could be down as much as the mid-double digits percentage- wise, company officials said.

In contrast, THQ said sales of its games are meeting expectations. The company declined to give sales figures, but said that the latest game in its wrestling series, "WWE SmackDown v. Raw 2006" is doing "very well," while new titles including a spin-off of a game based on The Incredibles movie and another based on Nickelodeon's "Bratz" series were "on track."

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