(excerpt)

The glitz and glamour of making Hollywood movies has captured the public’s fascination for decades, with the hundreds of millions of dollars generated by the latest movie blockbusters making headlines and pointing to the industry’s revenue potential. Given the huge box-office numbers, and the loyalty of the movie-going public in both good and bad economic times, it is surprising to find that the track record for stocks in the entertainment industry tends to be spotty at best, even for companies that enjoy a high rate of success.

Few Hollywood studios can match the success rate of DreamWorks Animation in creating hit movies. The company, which began in the 1990s as the animation division of DreamWorks Studios before being spun-off as an independent company in 2004, has produced the “Shrek,” “Madagascar,” and “Kung Fu Panda” movie franchises among its 26 feature films released to date. Collectively, these movies have made $11 billion worldwide, which translates to an impressive average gross per movie of $430 million.

Meanwhile, the stock trades well below its IPO price from 2004, with a trading history that generally follows how its new movies were able to perform compared to expectations. For example, the stock rallied to an all-time high of $44 per share in March 2010. At that time, DreamWorks released “How to Train Your Dragon,” which exceeded industry expectations. ...

...Clearly, a company that is largely dependent on the hit-and-miss game of producing blockbuster movies does not have a sustainable, winning formula. Thus, it has come as welcome news that DreamWorks has moved to diversify its sources of revenue with a series of solid strategic moves.

It recently entered the online content market by acquiring the popular YouTube teen network, AwesomenessTV, one of the fastest-growing content channels on the Internet today. The deal combines a popular distribution outlet with DreamWorks’ greatest strength, its creative talent.

In addition, DreamWorks recently made a deal with Netflix to expand into television production. Netflix will use DreamWorks characters such as Shrek, Casper, He-Man, and others from its hit movies, as well as their Classic Media catalog (a property DreamWorks acquired last year) to create “original series” content. ...

...DreamWorks is also expanding its business in China. It announced a joint venture with several Chinese entertainment companies to form Shanghai Oriental DreamWorks Film & Technology Company. ...

...These initiatives have helped the company capture the attention of Wall Street, as the stock price has bounced back following the February low point. Still, creating new animated feature films and new blockbuster franchises is critical to the firm’s success, particularly since it does not intend to produce another feature-length Shrek movie.

DreamWorks has been stepping up its production timetable and schedule of releases to the point where it expects to introduce five new movies every two years. This generates a more rapid rate of production compared to the competition in the animated feature industry (primarily Disney/Pixar) and a schedule intended to help it expand its film library and eventually add popular characters that will help fuel the television and online content initiatives. Of course, this schedule will help the company rebound more quickly should it miss expectations with a new release, as it did during the holiday season last year. ...
 


If you would like a copy of the complete article, please send an email request to This email address is being protected from spambots. You need JavaScript enabled to view it., or call toll-free 1-866-444-6246. If sending an email request, please include the following: title, date of article, and your mailing address.

Important Consumer Disclosure

Mainstay Capital Management, LLC is an investment advisor registered with the Securities and Exchange Commission. Due to various state regulations and filing requirements, Mainstay and its representatives may only provide investment advisory services in those states in which it is first appropriately registered or otherwise exempt or excluded from registration requirements. The purpose of this website is to provide the public with general information about the services offered by our investment management firm. Mainstay does not render personalized investment advice or services or effect, or attempt to effect any securities transactions, on this website. Our firm continuously monitors its filing requirements in all states, and will provide individualized advisory services only in accordance with various state regulations. Mainstay does not make any representations or warranties as to the accuracy, completeness, or relevance of any information prepared by any unaffiliated third party provider, whether linked to Mainstay's website or incorporated herein. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.