Wedbush Weighs In On Midway, Activision Earnings

Following the financial results released by both Midway and Activision yesterday, market analyst firm Wedbush Morgan Securities has released its findings and outlook regarding both companies, calling the former 'prudent' with its investments and the latter a compelling stock purchase prospect. Concerning Midway, which reported losses in line with those anticipated by the company, as well as net revenue for second quarter ended June 30, 2006 to be $25.9 million, Wedbush confirmed in a research note issued by the firm that it is maintaining its 2006 estimates for revenues of $160 million, as well as its 2007 estimates for revenues of $200 million. The analyst noted that it feels Midway is being “prudent” with its investments during the console transition period, and that it is doing so in an effort to become better positioned for the next console hardware cycle. Midway currently is developing three titles for Nintendo Wii platform to be available at launch, which a fourth, Mortal Kombat: Armageddon, will be released in early 2007. In addition, the company is currently developing Stranglehold, a next-gen, Unreal Engine 3 powered title which marks a collaboration with Hong Kong movie legends John Woo and Chow Yun Fat, for the Xbox 360 and PlayStation 3. However, while Wedbush reiterated from its previous outlook that it believes Midway to be a potential “turnaround story”, the firm has maintained is stock rating of HOLD, and indicated that it has “no clear visibility as to when it will achieve profitability.” Turning to Activision, which reported earnings yesterday that beat expectations while still posting a net loss of $18 million, Wedbush commented in a research note that the company's guidance was, like Midway, “prudently cautious”, given the “uncertainty surrounding the timing and launch quantities for the PS3 and Wii”. The firm also wrote that it feels Activision intends to “conservatively account for its recent acquisition of RedOctane”, which if true could result in “higher than expected amortization of intangibles” for the year. The company noted that it feels that Activision's share price, which as of the market opening today was up 2.89 percent and traded at $12.80, represents a “compelling entry point for Activision shares”. Thus, Wedbush has opted to maintain its stock rating of 'Strong Buy' regarding the major U.S. video game publisher.