Why DreamWorks' Shares Dipped
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: It was a nightmare of a day for DreamWorks Animation's (NAS: DWA) shares, as they fell as much as 10% in intraday trading after the company reported second-quarter results.
So what: It's not that Madagascar 3 has done poorly -- its worldwide gross through the end of the second quarter was more than $500 million worldwide. However, that was less than the $600 million that Kung Fu Panda 2 racked up in the second quarter of last year. The difference is in part due to DreamWorks' having not yet released Madagascar 3 in key markets like the U.K. and Australia because of the Olympics. So there's more to come. Somewhat more concerning is that costs have been higher on Madagascar. The movie's print and advertising costs, for example, have already reached $175 million, which is above the $145 million that had been budgeted.
What this all amounted to was earnings per share for the quarter of $0.15, which was not only down drastically from $0.40 last year, but also below the $0.25 that Wall Street had estimated.
Now what: For investors looking for a company with steady, stable earnings that they can count on quarter in and quarter out, DreamWorks is not the place to be. This is a movie- and hits-driven business, and it's going to see drastic fluctuations based on the timing and success of each of its movies. The higher-than-anticipated costs are a legitimate concern, but long-term DreamWorks investors should step back and make sure to keep their focus on the bigger picture rather than a single quarter.
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