Despite 'Panda' Power, DreamWorks Animation Misses 'Shrek'

It takes a lot of green to overcome the absence of Shrek.

DreamWorks Animation (DWA) is now more than a year removed from the fourth -- and supposedly final -- installment in the green ogre's franchise, and it's showing.

The computer animation studio saw its revenue slide 21% in its latest quarter. Even worse, profitability tumbled 70%. Analysts were targeting more on the bottom line. The comparisons get kinder on an annual basis, but there's no call for applause when revenue and earnings for all of 2011 fell 10% and 48%, respectively.

Shares of DreamWorks Animation opened sharply lower on Wednesday after Tuesday night's report.

Panda Express

It's not as if DreamWorks Animation had an unproductive year at the box office. Kung Fu Panda 2 and Shrek spinoff Puss in Boots combined for a healthy $1.2 billion in worldwide box office receipts.

However, DreamWorks Animation had three releases in 2010 -- How to Train Your Dragon, Shrek Forever After, and Megamind -- that raked in a grand total of $1.6 billion globally in gross ticket sales. It was the company's biggest year at the box office, making it a hard act to follow in 2011.

Rubbing some extra salt in DreamWorks Animation's relative wound, Gore Verbinski's Rango stripped away the Oscar over the weekend for best animated film from dueling nominees Kung Fu Panda 2 and Puss in Boots.

How to Train Your Dragging

There's a good chance that 2012 won't be a whole lot better. Too much is riding on June's theatrical release of Madagascar 3 at a time when domestic multiplex attendance is at a 16-year low. The studio's other release for 2012 -- Rise of the Guardians -- was bumped to a late November release so it wouldn't butt heads with Pixar's Monsters University, which Disney (DIS) is rolling out in early November.

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Analysts may not see it that way. Wall Street is looking for a flattish revenue and earnings growth for DreamWorks Animation this year. It's not great, but after last year's tumble it could be worse.

If there's a silver lining here, it's that DreamWorks Animation is starting to cash in on its growing vault of popular computer-rendered theatrical releases. The studio has now put out nearly two dozen movies, and online deals are starting to happen. DreamWorks Animation struck a streaming deal with China's leading video-sharing site Youku (YOKU) last year. A streaming deal with Netflix (NFLX) kicks in next year.

At its best, computer animation can deliver chunky net margins in the near term and healthy returns in the long run. As disappointing as DreamWorks Animation's fourth-quarter results may have seemed, earning $24.3 million on $219 million in revenue still translates to net margins in the double digits.

However, cost concerns and a relatively weak slate of 2012 releases will keep the enthusiasm in check here. Maybe it's time to dust off the Shrek money tree again.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Disney and Netflix. Motley Fool newsletter services have recommended buying shares of Disney, Netflix, and DreamWorks Animation.