Wedbush: Midway On Possible Growth Rebound?

Market analyst firm Wedbush Morgan Securities has predicted that Chicago-headquartered developer and publisher Midway Games will report a second quarter loss in line with expectations this week, though it believes potentially dramatic growth for the company is a significant possibility. In a research note issued by the firm, Wedbush noted that it expects Midway, which is highly leveraged in next-gen games such as Strangehold which are yet to debut, is to report revenue of $26 million, compared with consensus for revenues of $25 million. The company had issued guidance of $25 million in revenue and a net loss of $32 million. These numbers were not helped by what Wedbush called a "light release schedule" for Midway during the quarter, as well as a 4 percent decline in U.S. sales from the same period a year ago. The analyst believes that Midway will continue to report a cautious outlook and guidance for the year, currently for revenues of $155 million and a net loss of $66 million - further showing that the company's internal studios are working heavily on PS3 and Xbox 360 games that have longer-term release dates, but may provide a resurgence for the company. The firm looks for the developer and publisher to continue to invest in its future, which will result in losses throughout the remainder of 2006. Midway's share price has seen a substantial decline since December 16, 2005, dropping from $23 to $6, before rising only slightly to $9 recently. The analyst firm notes that it believes the drop and recent recovery to be “largely attributable to the cessation and then resumption of purchase of Midway shares by its largest shareholder, Sumner Redstone.” The stock opened its trading today at $9.34. As a result of continued losses, the firm has maintained it "hold" status on Midway's stock, though it does add that the company is “a potential turnaround story.” Wedbush believes that, judging from Midway's cost structure, the company has the potential to generate revenue of $300 million annually, and that it continues to be confident that it will see revenues in the $300 – 800 million range during the next several years. However, Wedbush adds that in order for Midway to achieve this level of revenue, it must continue to grow its development capability.