You like to hear such candor, and yet, you don't. In Midway Games' (NYSE: MWY ) most recent conference call, President and CEO David Zucker, said the following: "Our results for the full-year 2003 and fourth quarter were very poor."
He's right, but he should get credit for not pulling punches, blaming the weather, the economy, or knee socks for what truly was an internal issue.
Midway's revenues dropped almost 50% in 2003, from $191 million to $92 million, as compared to 2002. For the fourth quarter, the drop was even more stark: $80.2 million to $30.1 million, a whopping 62% tumble. These are numbers normally associated with a company going out of business.
Zucker's right, they're awful. The company lost $2.42 per share, saw its current asset position halved, and offered very little cheer.
Then the company gave guidance that it would generate revenues of $140 million for 2004 -- nearly double what it did in 2003. This is either a company that is beset with some virulent strain of dementia, or it's one in the throes of reorganization. As it turns out, the answer is the latter.
There's no question that Midway has struggled against some of its stronger rivals, particularly Motley Fool Stock Advisor selections Electronic Arts (Nasdaq: ERTS ) and Activision (Nasdaq: ATVI ) , but the company also has made substantial moves to address the problems. In 2002, Midway released 42 different video games, while in 2003, it only put out 28. In May 2003, former CEO Neil Nicastro left the company -- along with $9.5 million in severance (when will companies stop compensating for total failure?).
Zucker, who took over for Nicastro, has shown he knows how to cut dead wood. The company wrote off games in development in every area, including driving games, where it had never shown much competence. He's also charged the company to make games that are "fewer, bigger, better." As a result, the game maker has elongated development time, pushing titles that would have gone out in 2003 into 2004.
Thus the company's miserable performance. Not that this was a surprise to anyone. Zucker started in May 2003, and as of yesterday afternoon, investors expected his company to turn in a net loss, one substantially lower than the actual number. When the best thing you can say is that a quarterly loss narrowed due to the number of shares outstanding, that's a problem.
Still, the company has some reason to be optimistic. Its newest release, The Suffering, gained approval from Sony (NYSE: SNE ) and Microsoft (Nasdaq: MSFT ) , manufacturers of the most important gaming platforms, and is scheduled to be released in early March. The company's valuable Mortal Kombat franchise will also have its next-generation game release this year. But at this point, the success in these games is far from assured. All we have is the history of 2003, and it was really bad.
Midway investors have some reason to believe 2004 will be better. Let's hope so -- this is a company that's made a long habit of disappointing its shareholders. This time around, I actually get the sense that the company is moving in the right direction.
If current management doesn't turn the company around soon, those $40 million cash-burn years will start to add up.
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Bill Mann owns none of the companies mentioned in this article.
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