Midway: Cheap for a Reason

Can things get any worse at Midway Games (NYSE: MWY  ) ?

Sure, the publisher hasn't been doing well for a while, but the answer to that question is a decided yes, considering the bad guidance that management issued this week.

Midway believes that the red ink it intends to report during the third quarter will be redder than previously thought. The net loss should come in around $0.33 per diluted share; before, the company was hoping for a net loss of only $0.23 per diluted share. As for the top line, the forecast has been demoted from $50 million to $39 million.

As can be expected, the full year will also be adjusted. Look for the net loss to be twice as worse as prior guidance -- $0.85 per diluted share versus $0.44 per diluted share. Sales will probably be $170 million as opposed to $225 million.

Remember the 1980's movie Brewster's Millions? The one where Richard Pryor had to lose a ton of money in a tight time frame? I would have advised him to use Midway as a tool to accomplish the task. If you haven't come to appreciate Activision (Nasdaq: ATVI  ) or Electronic Arts (Nasdaq: ERTS  ) yet, maybe this negative financial update from Midway will help you see the light (for a comparison, check out Activision's recent quarter).

Driving this terrible outlook is a shift in the release schedule for a couple of games. Stranglehold for the Sony (NYSE: SNE  ) PlayStation 3 will be moved to the fourth quarter, and Unreal Tournament 3 for the same system will be issued in the first quarter of 2008. Goodbye, frenzied-shopping-season opportunity.

Midway's stock has often been on the low end of the spectrum in terms of price, but as of late, it's become even cheaper. At yesterday's close, the stock was trading for $3.99 per stub. Believe me, it can go even lower from here -- this isn't the one to bottom-feed on. Midway is starting to look like another company the console revolution left behind -- Atari (Nasdaq: ATAR  ) . I'm not alone in this line of thinking -- the Motley Fool CAPS community is bearish on Midway, too.  

Nintendo is selling out its Wii system on a consistent basis, Microsoft (Nasdaq: MSFT  ) and Master Chief are doing gangbuster business on the Xbox 360, and Take-Two Interactive's (Nasdaq: TTWO  ) BioShock is making hardcore gamers forget about the Grand Theft Auto IV delay.

And then there's Midway, a proverbial falling knife. The stock price will surely bounce around as traders have a field day with it, but I'd advise Fools to forget about the publisher for now.  

The game is on at the Fool:

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