Midway Games Needs a Hit

The stock touches a 52-week low as investors fret about the company's holiday-season prospects.
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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.