Analyst: Struggling Atari Results Below Expectations?

Market analyst firm Wedbush Morgan Securities today announced that it expects video game publisher and developer Atari to report fourth quarter results that fall below market expectations when it announces its year-end results tomorrow. In addition, the firm indicated that it has maintained Atari's stock rating as 'Hold' due to the company's “liquidity constraints and uncertain fundamental outlook.” Wedbush analyst Michael Pachter commented: “We modeled revenues of $70 million and EPS of $(0.06), compared with consensus for revenues of $73 million and EPS of $(0.05), and think that revenues could be as much as $10 million below our estimates, with a significantly larger loss.” While Atari did not provide any recent guidance on performance, NPD U.S. retail video game software sales data for the March quarter implied that Atari’s sales were down 29 percent compared with the same quarter during prior year. The report from Wedbush also indicated that while the release of Driver Parallel Lines could possibly drive the company’s publishing revenues close to the $58 million estimate for the quarter, it does not expect distribution revenues to meet its $12 million estimate. The firm expects that Atari will reaffirm its commitment to lower costs by aligning operating expenses with lower revenues. In addition, the company recently raised a total of $25 million through what it called "the divestiture of certain non-core assets" - including the sale of the TimeShift to publisher Vivendi and Stuntman to THQ – which could lower revenue expectations. Other recent sales include the Games.com casual game site (purchased by AOL), and Texas-based studio Paradigm Entertainment (also to THQ). Wedbush Morgan's estimate indicated that Atari may be going through the same decline that other video game publishers are experiencing as part of the console hardware transition as consumers hold off on purchases of current generation software in anticipation of the upcoming console launches later this year. However, the report concluded by stating: “We continue to believe that Atari is taking the right steps to return to sustained profitability, although it appears that the process will take much longer than previously expected, and senior management vacancies increase the company’s risk profile.” It added: “The company intends to focus on making fewer, higher quality games, and upon simplifying its relationship with parent company Infogrames. We believe that the vacant CEO and CFO positions place a great strain on the talents of interim CEO Bruno Bonnell, and dramatically increase the execution risk involved.”