How THQ Selectively Disclosed Bad News - TheStreet

THQ talk:

Two weeks ago investors in

THQ

(THQI)

, a video game maker, were ready to have my head.

The Hostile React-O-Meter was spinning outta control,

outta control, I tell 'ya

, after my

column headlined, "Is THQ Really That Much Better Than Its Competitors?" There were calls for an

SEC

investigation and the usual garbage that follows such a column.

The gist of that column was that, at a time when every other video-game maker was either reporting disappointing earnings or warning of a disappointment, THQ was issuing a press release claiming that it wouldn't just meet its fourth-quarter estimates, it would beat them. (THQ's CFO told me THQ was different because it was better-managed.)

Short-sellers, however, alleged that several important THQ titles hadn't sold very well last quarter, and they claimed the company was relying on aggressive accounting techniques to make its earnings look better than they really are.

Now hear this: Late Tuesday the company apparently met (either together or individually) with analysts to lower the boom: While the fourth quarter will be fine, the bulls say the first and second quarters are likely to be a tad lighter than expected: 25 cents per share this year vs. the 55 cents the company earned in the first quarter last year, and 5 cents vs. 21 cents in the second. (Seems sales aren't as robust as expected and expenses are higher than expected.)

But, hey, not to worry: THQ (according to analysts) will make up all or most of the gap in the second half, especially in what one analyst said will be a "monster" fourth quarter. As a result, most analysts kept their year-end earnings forecasts unchanged.

They now believe the company can more than double earnings in next year's fourth quarter -- a quarter when the entire industry is expected to be hit by a major slump as

Sony

(SNE) - Get Report

and

Nintendo

transition into new-generation platforms.

What I want to know is how

anybody

can forecast such a big increase so far in advance? I also want to know why the company leaked the information to a few analysts rather than doing what most companies do these days -- 'fess up with a press release.

Isn't that called selective disclosure?

And, while we're at it, why were so many top execs selling stock back in November when the stock was in the high 30s, split-adjusted? (It closed yesterday at 18 7/8.) What did

they

know?

The company's previously chatty CFO, Fred Gysi, didn't return my call.

Herb's Latest: Join the discussion on

TSC Message Boards .

Fun and games:

Two months ago

eToys

(ETYS)

sold $150 million in convertible bonds as a private placement. Now, so those bonds can trade publicly, it has filed a registration statement with the SEC covering those shares. Right up front the company discloses that just two months

after

the original offering, the bonds are trading at 55% of their face value.

"So much for taking the low-risk approach and buying bonds," snickers the ever-prolific Eric Von der Porten, a California money manager and regular contributor to this column.

Normally I wouldn't pay attention to the boilerplate: "Although we believe that the net proceeds of this offering, together with current cash, cash equivalents and cash that may be generated from operations, will be sufficient to meet our anticipated cash needs through December 31, 2000, there can be no assurance to that effect."

"Given the bath that the bond buyers have taken in the last two months," Von der Porten points out, "the company had better not need to head back to market anytime soon."

Memo to Cramer:

Happy B'day. (I'm still older, but you're catching up.) Oh, and by the way, loved that

"cheap shot" (your words, not mine) in your column yesterday: "Enough already about

Lernout & Hauspie

(LHSP)

. Who cares?"

I also loved the response we both got from Bill Meehan, chief market analyst at

Cantor Fitzgerald

: "At the risk of sounding like a Herb sycophant, I appreciated his comments on LHSP. I agree it's of little use to kick it when it's down, but the stock is up 60% in less than eight days and I'm now considering a short, which I wouldn't have since it's been far removed from my radar screen. (I have no position currently.) If it was still languishing in the 30s I'd agree with you, but today's piece was 'good stuff.'"

So, there!

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.