Wedbush: Midway Could Achieve Profits By 2008

Following yesterday's Midway results which saw the company reporting a better than expected $11 million in sales for Q1, Wedbush's Michael Pachter has said it remains "cautiously optimistic" on the publisher, and that the company could return to profitability in 2008. "We remain cautiously optimistic that Midway will perform significantly better than it did during the previous console cycle," said Pachter, "and believe that it can generate sustainable profits if it can deliver revenues above the $300 million annual level" -- a possibility for 2008, given the company's release. Pachter said that the company is "investing prudently during this console transition in order to position itself to compete in the next generation console cycle." Looking at specific titles, he calls out the forthcoming Wii version of Mortal Kombat: Armageddon as a possible sleeper hit, which "could sell well in excess of the 150,000 units we have modeled." "We also expect Stranglehold (PS3, 360) and Unreal Tournament III (360) to perform quite well, and think that the company’s other games have the potential to do well, including Blacksite: Area 51, The Wheelman, and Hour of Victory. We are cautiously optimistic that Midway will perform significantly better than it did this past console cycle," the analyst said. "Midway expects revenues of over $215 million in the last nine months of 2007," Pachter noted, "and should Mortal Kombat or any of the other major titles perform better than expectations, the company could be at an annual revenue run rate of more than $250 million. Thus, we believe that Midway is only one franchise away from achieving breakeven economics," adding that the publisher has a good chance of doing this in 2008. Though Wedbush is continuing to maintain a 'hold' rating on the publisher, Pachter concludes that "once Midway begins to demonstrate that it can compete effectively (and profitably) in the next console cycle, we believe that the company’s shares will begin to reflect the company’s potential to deliver consistent earnings. We think that could occur as soon as late summer 2007, as we believe that several of the company’s Q3 releases have the potential to perform well."