WMS: Midway Losses 'Low Point in Turnaround Story'

A report issued by Wedbush Morgan Securities analyst Michael Pachter focusing on game publisher Midway's disappointing 2005 financial results suggests that Midway's losses are merely the low point in what will eventually be a profitable business, though when exactly the profits will come is up in the air. "Although Midway continues to generate large losses, we continue to believe Midway is a turnaround story," read the report. "The company's cost structure suggests that it can achieve profitability at revenue levels of $300 million annually, but as Midway continues to build the infrastructure necessary to support revenues at the $300 - 800 million level, it must continue to expend resoures on growing its development capability which will continue to delay the completion of its turnaround." Despite cutbacks, including the recent Australian and San Diego layoffs that occurred in December 2005, the report does comment that Midway plans to increase their product development employee base from 625 to 725 in 2006. Additionally, Midway will release a number of "big-name" titles in 2006, including entries in its own Mortal Kombat, NBA Ballers, and Epic's Unreal Tournament franchises. Whether or not this will boost revenue and turn the company around, however, is still a matter of debate. "The company continues to invest in its future, generating large losses along the way, and we expect this to continue throughout 2006," said the report. "Although we believe Midway has reached the low point in its turnaround story, we have no clear visibility as to when it will achieve profitability."