Short DWA, Dreamworks before bell!

Discussion in 'Trading' started by fxpeculator, May 10, 2005.

  1. Downside doesn't seem to be priced in fully.

    By Johnnie L. Roberts
    Updated: 2:15 p.m. ET May 10, 2005May 10 - Last week, animation studio Pixar delivered “Incredibles”-sized first-quarter results, surprising Wall Street with profits that had tripled over the year earlier. Today, its chief rival, DreamWorks Animation, is likely to deliver a surprise of its own: earnings as unattractive as its star character Shrek.


    According to DreamWorks insiders, the studio expects to report earnings substantially below the 60 cents per share that Wall Street analysts have estimated for the quarter. DreamWorks went public last year in one of the most successful IPOs in show business.

    Insiders, who are describing the results as “surprising” and “disappointing,” said they were briefed on the news by CEO Jeffrey Katzenberg at an 8 a.m. meeting on Monday. It’s unclear what is behind the unexpected decline. In remarks to a Wall Street audience on March 31, Katzenberg delivered a generally upbeat outlook about the company’s prospects, dismissing the notion of an over-saturated animation market and predicting that the company’s releases would best offerings from rivals.

    DreamWorks’ Ambitious Plans to Rule Animation

    On Monday afternoon, Katzenberg told NEWSWEEK that he wouldn’t be commenting on financial results until this afternoon. The company is expected to make the numbers public after the equities markets close.

    Analysts have been expecting DreamWorks’ two most recent hits--“A Shark’s Tale” and “Shrek 2”--to fire first-quarter results. “Shrek” is the company’s most successful property, with a combined box office of $700 million. First-quarter results would reflect DVD and international sales for “Shrek 2,” which was released last May, and ticket sales for “A Shark’s Tale,” which hit theaters at the end of last September. Katzenberg is pressing an aggressive plan, including the release of two movies every year, to wrest dominance in feature animation from Pixar. On May 27, Dream Works will release its latest movie, “Madagascar.” This fall, it will debut “Wallace & Gromit” based on a popular British animation.

    Having pulled off its succesfull IPO late last year, the animation unit, a former division of DreamWorks SKG, is set to make a secondary offering near the end of the month. The three original outside investors hoped the transaction will fetch some $600 million. The question now: will today’s numbers derail that payday?