Midway Games Needs a Hit
Shares of video-game maker
Midway Games
(MWY)
touched a new 52-week intraday low Tuesday as investors seemed to lose their faith in the company's ability to churn out a blockbuster title this holiday season.
While Midway's stock bounced back in the session to reach positive territory at $4.30, the shares are still down more than 50% from their 52-week high of $9.33.
It could get even worse for shareholders if Midway's game
Stranglehold
and an upcoming release,
BlackSite: Area 51
, don't find favor among gamers this holiday season.
"If
BlackSite: Area 51
fails to live up to management's expectations, in tandem with a
Stranglehold
miss, it could cause Midway to fall into deeper financial troubles," says Brian Sozzi, an analyst with independent research firm Wall Street Strategies.
"I continue to look for the shares to move lower as the industry heads into its peak selling season," he says. "Competition will be tough from the likes of
Halo 3
,
Bioshock
(from
Take-Two
(TTWO) - Get Report
),
Rock Band
(from
Electronic Arts
(ERTS)
) and
Call of Duty 4: Modern Warfare
(from
Activision
(ATVI) - Get Report
)."
Investor interest in Midway has largely hinged on the buying by the company's largest shareholder,
Viacom
(VIA) - Get Report
Chairman Sumner Redstone. Redstone holds an 87.5% stake in Midway, individually and through Viacom parent
National Amusements
.
But with Redstone seemingly distracted by an alleged feud with his daughter, Shari, who is the president of National Amusements, Midway's place in the Redstone portfolio is unclear, causing traders to flee the stock.
"Many traders bought Midway shares because Sumner Redstone was buying it," says Michael Pachter, an analyst with Wedbush Morgan, which does not own shares or have an investment banking relationship with Midway. "If Redstone comes back and buys even one share, the daytraders will be on Midway," he says.
Without that Redstone crutch, though, Midway is struggling.
The company's biggest game of the year,
Stranglehold
for
Microsoft's
(MSFT) - Get Report
Xbox 360 release
debuted earlier this month to mixed reports.
Stranglehold
, created in collaboration with Hollywood director John Woo, has received an average score of 78 out of 100 for Xbox 360 and a score of 81 for
Sony's
(SNE) - Get Report
PlayStation 3 console, according to ratings aggregation site Metacritic. Recent releases like
BioShock
and
Halo 3
have bagged scores of 96 each.
Microsoft's 2006 hit
Gear of War
, which plays in the same genre as
Stranglehold
, garnered a 94 from the critics.
Analysts had expected
Stranglehold
, a third-person shooter game, to sell between 1.5 million and 2 million copies, which if met, would put the game squarely in the blockbuster category.
Gear of War
sold more than 3 million copies within less than three months of its release.
While expectations for
Stranglehold
may not have been that high, the game still debuted to criticism over its lack of complexity and inability to keep players riveted for long, raising questions about how well it will fare on the charts.
But it may be too early to write
Stranglehold
off, says Pachter. "The NPD data for
Stranglehold
is not yet out and the game is among the top-10 rentals in the U.K., so it could do better than what most people expect," he says.
Even if Midway gets a temporary reprieve on
Stranglehold
, the company's release slate for fiscal 2008 remains unclear.
"I think they are not being open enough about what they have planned for 2008," says Pachter. "I don't know what the catalysts for the company are until I have better visibility into their upcoming releases."
Midway has promised analysts it will offer more details about games the company is working on when it reports its third-quarter earnings in November.
Until then, Midway investors will likely continue to see some tough times.