Pachter: Midway Could Turn Profit In 2008

Wedbush Morgan analyst Michael Pachter recently provided his comments following Midway's recent announcement of its financial results, which revealed that, for the three-month period ending September 30, 2007, its sales totaled $36.7 million, up from $27.4 million last year -- while it also reported losses of $33.5 million, increased from $22.5 million in 2006. On Midway's lowered 2007 guidance for revenue to $160 million from $170 million, Pachter commented: "Though we are disappointed with the lowered guidance (again), we remain cautiously optimistic that Midway will perform significantly better in 2008 than it did in 2007. We believe that the company can generate sustainable profits if it can deliver revenues above the $300 million annual level. The company’s release schedule implies to us that the turnaround could be complete in 2008." Pachter expects Midway's '08 lineup, with NBA Ballers, Wheelman, TNA Impact, and Unreal Tournament anticipated in the first half of the year, and Blitz, Mortal Kombat and "one or two new internally developed open-world games" possible in the second half, "to generate $30 – 40 million in revenue, with at least two of them having the potential to generate more than $50 million." Nonetheless, despite that confidence and the fact that the company "has passed the low point in its turnaround," Pachter acknowledged that the company continues to generate large losses. "The company has managed the expense side of its income statement quite well, with total operating costs at an annual run-rate of under $100 million," he said. "Should the company be able to sustain its spending at this level, we believe that it will be profitable at the $300 million revenue level. Next year’s lineup looks like it has the potential to generate $300 million in revenues, giving us greater confidence that Midway will finally turn a profit next year." Calling Midway's continued revenue growth "still an open question," Pachter concluded, "Now that the company has provided greater clarity into its SKU plan for 2008, it must prove that it can deliver high-quality games that have consumer appeal."