Updated from July 29

Investors shot down THQ ( THQI) shares on Friday after two analysts downgraded the stock.

The downgrades followed the video game software publisher's quarterly report on Thursday. Although THQ's results matched analysts' estimates, the company's predicted a much worse-than-expected outcome in its current quarter.

In recent trading, the company's shares were off $1.25, or 6.1%, to $19.15.

THQ is projecting that it will earn $1.10 a share this fiscal year. But after losing 10 cents per share in its just-completed quarter and predicting a 20-cents-a-share loss in its current quarter, the company would have to post $1.40 in earnings in the second half of its year to meet its target, noted American Technology Research analyst P.J. McNealy, in a research report issued Friday.

Meanwhile, the company's outlook implies that about 50% of its revenue will come in the holiday quarter and another 25% will come in its fourth quarter, which ends next March, McNealy noted.

McNealy questioned whether THQ would be able to meet those targets. Those could be impossible targets to hit, he said. Only once in the past five years has one of the major video game software makers taken in 25% of its sales in the March quarter, he said. And the company faces increased competition this holiday season in its core segment of kids games, he said.

"THQ has now truly back-loaded its publishing schedule," McNealy said. "With increased concern about the company's ability to execute against plan, we are downgrading THQ from a buy to a hold."

(American Technology Research does not do investment banking and McNealy does not hold shares in the companies he covers.)

McNealy wasn't the only one with an unfavorable outlook on THQ. Piper Jaffray analyst Anthony Gikas changed his rating on the company to a market perform in a research note released Friday from an earlier outperform rating. Gikas noted that THQ could face a crowded market for video games in the March quarter if it and other game makers don't fare as well as expected during the holidays.

The next two years will likely be transition years for the video game makers as everyone gears up for the next generation of consoles. That will likely mean a sales decline for the sector, he wrote. In turn, investors will likely sell off video game stocks later this year as they adjust to reduced expectations.

"We think price-to-earnings multiples are due to decline, and THQ will be no exception," Gikas wrote.

(Piper Jaffray does not have investment banking business with THQ.)

Wedbush Morgan Securities analyst Michael Pachter maintained his hold rating on THQ shares in his report issued Friday. Pachter said he was disappointed by THQ's guidance and that the company didn't exceed revenue expectations in its just completed quarter.

The company's second-half forecast implies that its revenue will outpace that of the broader market for video games during that period, Pachter said. But in the fourth quarter alone, THQ will be going up against expected blockbuster titles such as Take Two's ( TTWO) Grand Theft Auto: San Andreas and Microsoft's ( MSFT) Halo 2, he noted. Those and a few other blockbuster titles will likely account for all of the sales gains for the video game sector in the fourth quarter, Pachter wrote.

"THQ would have to gain market share in order to achieve its revenue guidance," Pachter said. "We think that this is unlikely."

(Wedbush Morgan does not have investment banking business with THQ.)

In its fiscal first quarter, THQ lost $3.9 million, or 10 cents a share, on $88.19 million in sales. Those results were off from a year ago, when the company lost $3.6 million, or 9 cents a share, on sales of $98.1 million.

But they were in line with what Wall Street was expecting. Analysts surveyed by Thomson First Call had predicted that THQ would lose 10 cents a share on sales of $86.55 million in the quarter.

The company doesn't expect to do as well in its current quarter. Instead, THQ expects to lose 20 cents a share on sales of about $80 million. For the full year, the company projected earnings of $1.10 a share on about $680 million in revenue.

In contrast, Wall Street had forecast profits of 6 cents a share in the current quarter on sales of $128.42 million. THQ's full-year forecast is above Wall Street's estimates, however. For fiscal 2005, analysts were expecting earnings of $1.07 a share on $682.64 million in sales.