DreamWorks Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of animated-movie maker DreamWorks Animation (NAS: DWA) were getting walloped by investors today as they fell as much as 12% in intraday trading after the company reported fourth-quarter results.

So what: The creator of animated hits like Shrek, Kung Fu Panda, and Madagascar saw its results dive from a year ago as revenue dropped 21% year over year and earnings per share fell more than 70%. Revenue of $219 million topped analysts' estimates, but costs were higher than expected and the $0.29 in profit per share was short of the $0.32 that Wall Street was looking for.

Now what: The results for the year ahead are expected to be driven largely by the summer release of Madagascar 3, while the upcoming quarter will lean on international box office and home video income from Puss In Boots.

It's practically a natural law that when a company's results miss analysts' expectations, shares will suffer a terrible fate. Foolish investors know that this often doesn't make sense. However, for a lumpy, hits-based business like DreamWorks, it makes even less sense than with other companies. The nature of DreamWorks' business means that it's imperative to judge it on at least an annual basis. Investors that are freaking out about today's bottom-line miss may want to consider whether they're ideally suited for investing in the movie business.

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At the time thisarticle was published Motley Fool newsletter services have recommended buying shares of DreamWorks Animation SKG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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