By David Poland firstname.lastname@example.org
Shouldn’t An Average Of A $500m Gross Per Movie Be Enough For Wall Street?
I continue to be astonished by the Wall Street analysts becoming Twittiots.
Today, the issue is DreamWorks Animation, one of the few public companies that is solely dependent on the revenues of their movies (including licensing) to remain in business and attractive to stock speculators.
I have zero problem with analysts or anyone else questioning whether DWA is a growth business or if it will be stagnant at best and sliding at worst. There are all kinds of opinions and my opinion of them is not the point of this entry.
The Hollywood Reporter did this story.
When you have the Peter Travers of Stock Analysts, Rich Greenfield, pushing his Agenda Of The Week and you get, ““The key drivers of DWA’s troubles are that its movies have not lived up to expectations and the global DVD market is in free fall as consumers continue to shift from buying to renting,” in response to the biggest Memorial Day opening of an animated film in history, you have to wonder why this one movie changed any of that. (To be as fair as possible to Greenfield, who seems to be perpetually auditioning for a CNBC or Fox Business daily show, he was a “sell” on DWA before the release of the film.)
When you have Janney Montgomery Scott analyst Tony Wible talking about how KFP2 didn’t meet HIS expectations of opening because its PROJECTED domestic gross is $20 million than his guess, which translates to about $9 million in net revenue to DWA (after exhibitors and Paramount take their cuts), you scratch your head an wonder… really? Less than $10 million off of his GUESS and so the company needs a kick in the balls?
Doug Creutz, analyst at Cowen & Co. seems to be the only non-jackass in the game, keeping his DWA position at “neutral,” taking international grosses seriously, and fairly considering whether a company with 2 films a year and no ongoing blockbuster franchises is in very good shape. He’s not rooting for them, but he is thinking about all the factors and not smelling his own farts.
You want my personal take? DWA is a little overvalued, but is a very solid business and should probably be taken private again.
There have been 22 DreamWorks Animation films in 14 years. Only 3 of the brands, representing 7 titles (projecting KFP2 into this group) that have cracked $500 million worldwide; Shrek, Madagascar, and Panda. The last DWA movie to do under $200 million worldwide was the first film with Paramount, Flushed Away, in 2006. There are 6 of those titles. And there is the middle class of this business, 9 films, grossing $200m – $500m, with 3D or without.
So excluding The Big Three brands, DWA’s last three films for Paramount grossed $382m, $495m, and $322m worldwide… all three in the Top 20 of worldwide grossers for 2010 and 2009. The weakest grosser for the company in the last 5 years grossed $288 million worldwide, #18 in the world that year.
So tell me… does that business suck? Is there a problem?
Well, the problem is that Wall Street is interested in growth and quarterlies and two film products a year is not enough to sustain either on a consistent basis. In a now aggressively competitive marketplace for animation, sustaining is hard enough, but growing in the way Wall Street wants growth is pretty much impossible. Getting lucky with a particular film is not really a sustainable stock market model.
But it was NEVER a sustainable stock market model.
If you can’t make a go of it with movies that gross $300 million or more every time out of the gate, you have a problem.
If The Market thinks $300 million every time out, with an average gross for your last five releases of just over $500 million worldwide, The Market has a problem… OR you don’t belong in The Market.
And I don’t just blame the analysts. It is the whole overhyped mentality about opening weekend. A little bit of information is a profoundly dangerous thing.