DreamWorks Animation (NYSE: DWA), the computer-cartoon studio that competes with the animation product of other entities such as Disney (NYSE: DIS), News Corp. (NYSE: NWS) and Sony (NYSE: SNE), posted Q3 results after the close on Tuesday. Revenues saw a modest decrease of almost 6%, coming in at $151.5 million. I am categorizing a 6% decrease as modest in this case because the studio had a Shrek sequel out in the previous year. The drop was expected. Net income was 41 cents per diluted share, a figure which includes a $0.03 tax benefit. Even so, DreamWorks Animation beat expectations. Wall Street was counting on only 32 cents per share.
Operational cash flow isn't faring too badly. It increased 9%, and the company seems to be doing well enough in terms of generating revenues from its portfolio of films. Kung Fu Panda helped to drive the quarter, but it isn't done yet, as the home-video release should affect Q4 in a most positive manner.
Now that the data is out, DreamWorks Animation is really readying itself for its next big test. Madagascar: Escape 2 Africa, the sequel to the hit Madagascar, is waiting in the wings. In fact, the wait is almost over. The film is due November 7, and the company needs to post big numbers on this one.
It has to show Wall Street that it has more than one Shrek-like franchise in it. Of course, Madagascar isn't Shrek, but if CEO Jeffrey Katzenberg can deliver a huge debut audience for the film, then perhaps it will prove that management can make good on its strategy of creating ongoing businesses out of many of its projects.
According to data at Boxofficemojo, Madagascar did roughly $193 million domestically and $530 million on a total global basis. Unfortunately, that cartoon was released during the summertime back in 2005, so I can't say I expect a repeat of that performance. Of course, who can say; this is, after all, the movie industry, and anything can happen. Thing is, though, I haven't felt a lot of excitement over Escape 2 Africa. Still, releasing it in this time period will be a useful experiment to see how Katzenberg handles a previous summertime property in the colder climes of the fall.
As for the stock, I think it's a decent long-term bet. It will be volatile at times since it is dependent on the public's taste for its cartoons. There's one constant about the public: it's fickle, to say the least. So long as the franchises keep coming, DreamWorks Animation will be considered a viable idea. In terms of trading the stock so close to Escape 2 Africa, you can probably count me out. The stock would need to move back to the 52-week low for me to consider such a move. For now, I'll let the predatory beasts of Wall Street chase the stock up and down the marketplace while I sit on the sidelines.
Disclosure: I own Disney; positions can change at any time.
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