On Aug 14, 2014, we issued an updated research report on
DreamWorks Animation SKG Inc.
DreamWorks delivered a positive earnings surprise in one quarter
last year, with an average beat of a negative 19.37%. In
second-quarter 2014, the company missed both the top and bottom
line of the Zacks Consensus Estimate.
DreamWorks has taken several steps to improvise on the film
making process to significantly cut down production costs. Sequel
films often generate impressive box-office results and are always
less risky investment-wise. The recently released flick "How to
Train Your Dragon 2" garnered nearly $487 million at the box-office
worldwide and will certainly boost the company's Feature Film
segment going ahead.
DreamWorks' upcoming films include Penguins of Madagascar, Kung
Fu Panda 3 together with sequels of The Croods and Puss in Boots.
The highly successful franchise Madagascar 4, scheduled to release
in the upcoming holiday season, is also poised to bolster the
company's top line moving ahead.
Meanwhile, DreamWorks has entered into an online streaming
agreement with Netflix, Inc. (
). Further, the company launched its online TV channel, DreamWorks
TV, on Google Inc.'s (
) YouTube. This multi-platform media service will combine
DreamWorks' original content library with the digital content
delivery expertise of its recently acquired Awesomeness TV (ATV),
thus making it a much lucrative venture.
Although sequel films are more profitable and have always
generated over $600 million in worldwide box-office sells, the
life-cycle of these films is limited. This implies that the company
cannot solely depend on these franchisees for revenue generation
over the long haul. Thus, DreamWorks should ideally come up with
new films to spur future growth.
The film business holds several risk factors. Moreover, higher
promotion and distribution expenses coupled with the implementation
of new technologies will continue to impact margins moving ahead.
Also, the success of a movie largely depends on the preference of
the audience as well as the timing of the release.
DreamWorks currently carries a Zacks Rank #3 (Hold). A
better-ranked stock worth considering in this sector is
Lions Gate Entertainment Corp.
) with a Zacks Rank #1 (Strong Buy).
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