Is there anything more depressing than a once-hot stock fallen upon hard times? Let's hope not, because the way things are shaping up at Atari (NASDAQ:ATAR), tomorrow's report on fiscal Q4 and full-year 2006 earnings is going to be plenty depressing already.

What analysts say:

  • Buy, sell, or waffle? Both analysts following Atari rate the stock a hold.
  • Revenues. Quarterly sales are believed to have grown 16%, to $72.8 million.
  • Earnings. The last time Atari reported a profit was in the third quarter of FY 2005. Analysts expect more of the same tomorrow: a $0.05-per-share loss.

What management says:
The big news at Atari is no news at all to shareholders who have watched the stock lose 80% of its value over the last 12 months: with its share price now just north of $0.60 per stub, Atari is in real danger of being delisted from the Nasdaq. According to Atari, the deadline for getting its stock back above the $1 level is August 30, 2006, meaning Atari has 77 days left -- and counting.

Other recent developments at Atari, though less headline-grabbing, are perhaps even more disturbing. Notably, the fact that parent company Infogrames' Chairman and CEO, and Atari Chairman, CEO, and Chief Creative Officer Bruno Bonnell, has donned a sixth size-C hat, and is now also Atari's Acting Chief Financial Officer. Reports that Bonnell is petitioning the Senate of Rome for the title of "dictator-for-life" could not be confirmed by press time.

What management does:
Although its gross margin remains more or less intact, falling only 300 basis points on average over the last 18 months, Atari has reported operating losses in five of the past six quarters. The primary culprit: flagging sales. Revenues have plunged 38% in the past six months compared to the same time period in the previous year, and Atari has been unable to cut its operating costs in tandem. Operating costs dropped only 13% during the same period as Atari maintained the R&D investments essential to its future success, resulting in rolling operating and net margins that haven't seen the light of day for nearly a year.

Margins %

9/04

12/04

3/05

6/05

9/05

12/05

Gross

46.4

42.9

46.5

44.4

44.3

43.4

Op.

0.3

(0.2)

3.9

(8.9)

(12.1)

(25.1)

Net

0.2

(0.6)

1.4

(12.6)

(16.9)

(31.8)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I'll be honest. After seeing all of the above, I'm severely tempted to go back and change this article's title to "Game Over for Atari." But I'll leave that judgment to fellow Fool Steven Mallas, who is waiting in the wings to give you the lowdown on the company's reported performance later this week.

In the meantime, I will highlight one thing in particular you'll want to be looking for in Atari's release tomorrow. In February, Atari announced a 20% payroll reduction that it planned to complete by March 31. Payroll being a key component of the "operating costs" that are standing between Atari and profitability, you'll want to keep a sharp eye out for any comments the company makes on the progress of this plan. Be aware that the company warned that it will incur costs for this reduction in force not only in tomorrow's results, but in Qs 1 and 2 of fiscal 2007 as well.

Competitors:

  • Activision (NASDAQ:ATVI)
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  • THQ (NASDAQ:THQI)

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Fool contributor Rich Smith does not own shares of any company named above.