Interplay: Playing the Right Tune

For shareholders of the game developer Interplay , the experience has been similar to one of the company's gruesome games, Fallout, which involves megalomaniac mutants and crippling radiation.

Since Interplay's IPO in June 1998, the stock price has been a nightmare; however, there could be a happy ending.

Interplay is a pioneer of the gaming world, founded in the early days of 1983. Now, the company is a publisher of a broad line of games, ranging from action, adventure, role-playing and sports. These games are available across a variety of platforms, including PlayStation, Dreamcast and Nintendo 64. Some of the best-selling games? It's a pretty good list, such as Descent, Virtual Pool, Baldur's Gate, and even Earthworm Jim. In all, the company has distribution in more than 16,000 retail outlets and has a presence in 50 countries.

In fact, the company has been showing some traction lately. In the last earnings report, the company had revenues of $31.6 million, which was a 34 percent increase from the same period a year ago. Actually, the company had net income of $113,000. There was an improvement in gross margins from 35 percent to 49 percent (compared to last year).

The company released a slew of new products last quarter. Examples: Baldur's Gate II, Star Trek New Worlds, and Caesar's Palace 2000. Interestingly enough, Baldur's Gate II is ranked #1 in dollar volume in the U.S.

What's more, the company will release more products in the fourth quarter. They include Sacrifice, Giants, Star Trek: Starfleet Command II, and a new title for the popular Virtual Pool series.

Interplay has been in the midst of a major restructuring. The company took steps to reduce expenses, change distribution policies and deal with bad debts. And it is working. Look at some key metrics: inventory turns went from 7 times to 14 times annually; accounts receivable days went from 75 to 85; and working capital switched from negative $8 million to positive $5 million.

Yet, the company has not sacrificed its development cycle of new products. All in all, it could be a nice Christmas for Interplay shareholders.