Midway: Ads Advance, Revenues Retreat

Video game developer Midway Games (NYSE: MWY  ) has a reputation for losing money, and that's never fun. It didn't improve that reputation in its latest quarter, but it might eventually benefit from an interesting opportunity emerging in the gaming industry.

Last night, Midway reported fourth-quarter results for 2005. Revenue fell 9.6% from the profitable year-ago quarter; the company's loss totaled $27 million, or $0.42 per share, net of a $10.8 million restructuring charge. That makes four consecutive quarters without a profit; Midway's last profitable quarter, in Q4 2004, was the company's first since Q4 1999. The outlook for 2006 doesn't bode any better. Revenue is expected to grow an uneventful 3%, and Midway expects "a reduction in net loss to approximately $66 million."

There's one ray of sunshine, though: Midway also announced yesterday that it signed a contract with in-game advertising company Double Fusion. Video games, with their demographically desirable young audiences, could become a significant source of advertising revenue for companies like Midway. Google's ability to deliver targeted advertisements to specific audiences helped that company boom, so it's worth watching to see whether ads will similarly buoy game developers in the future.

Midway's stock is down almost 11% in afternoon trading; at $9.71, it's well below its 52-week high of $23.73. Given the company's meager 2006 outlook, investors would be wise to bypass these shares in favor of profitable publishers like Motley Fool Stock Advisor recommendations Electronic Arts (Nasdaq: ERTS  ) and Activision (Nasdaq: ATVI  ) .

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Clickhereto see The Motley Fool's disclosure policy.


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