Midway Games (NYSE:MWY) loaded up its third-quarter earnings after the bell yesterday. The losses may have narrowed, but is this a stock worth investing in?

Before I give you my opinion, here's a sampling of the data. Revenues for the quarter declined 7% from the same period last year to $27.4 million. That's not exactly surprising, since the video-game industry is waiting for Sony's (NYSE:SNE) PlayStation 3 to arrive, as well as Nintendo's Wii. Microsoft's (NASDAQ:MSFT) Xbox 360 has already been out a year, and it continues to build out its user base.

Moving on to operating performance, the loss here narrowed by 28% to $20.3 million. The net loss also declined, coming in at $22.2 million ($0.24 per diluted share) versus $29.1 million ($0.33 per diluted share) last year. The publisher also came in ahead of Wall Street estimates by $0.02 per share.

It's encouraging to see that Midway has stemmed some of its red ink ahead of the important holiday season; in fact, one really nice note is that the gross profit for the quarter was in the black this time, after the company cut its costs of selling significantly. I don't have to tell anyone that these next couple months are what video-game companies like Activision (NASDAQ:ATVI), Electronic Arts (NASDAQ:ERTS), and THQ (NASDAQ:THQI) live for. Kids are eagerly informing their parents about the snazzy software titles they want under the Christmas tree as we speak, and Midway is hoping it can capture a lot of that excitement.

It's less encouraging that Midway expects a greater loss for the full year than it originally anticipated. That alone isn't necessarily reason enough to be wary of the company -- after all, everyone understands that the transition to the new console cycle is fraught with examples of losses and bad guidance, since publishers are waiting to charge higher prices for software on the new systems. At that point, they'll reap higher margins.

But add this to Midway's failure to deliver any positive operational cash flow in the last three fiscal years (as I've previously discussed). A check of the latest 10-Q also shows that for the past nine months, Midway also has no operational cash flow. The publisher has once again used up its cash instead of generating it, and although it hasn't gone through quite as much as in the previous nine-month period -- $77.3 million was used up so far this year, versus $84.2 million during the same time period last year -- it does nothing to erase the speculative nature surrounding this entity.

Midway has a horrible long-term financial record. Will it ever improve? Will there ever be a reason to buy and hold this stock, as opposed to trading along with Sumner Redstone, who has been buying up the company, and whose purchases sometimes cause a bit of excitement in the share price? Anything is possible, and I have to say that the publisher is diligently trying to make the most of a Time Warner (NYSE:TWX) license. I had a fun time playing one of the games based on Time Warner's Cartoon Network series Ed, Edd n Eddy this past summer, and I think it makes sense that Midway is attempting to counteract other major licenses held by THQ (which has the Nickelodeon license) and Activision (which has licenses from other animation studios) by hooking up with properties like the Cartoon Network programs, as well as games based on recent movies such as The Ant Bully.

As for now, though, this slate isn't enough. If I were to become interested in the stock, it would be after seeing some light at the end of this long, dark tunnel of operating losses. It's a simple thing, really -- don't go for Midway. Do some research on Activision, THQ, or EA. You're better off with those publishers.

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Fool contributor Steven Mallas owns shares of Activision. As of this writing, he was ranked 923 out of 12,074 investors in the CAPS system. The Fool has a disclosure policy.