DreamWorks Animation SKG Inc. (DWA, Financial) recently released its new animated production – "Home." The film, which opened across 3,708 domestic theaters on the weekend of March 28, became the week’s highest grossing movie in the US, raking in almost $54 million in revenues. Experts had forecast collections of just around $30-35 million for the movie during the opening weekend. With DreamWorks’ revenues depending heavily on its Feature Film division that contributes almost 75% of the company’s overall revenues, the success of "Home" drove up the company’s shares by 6.75% when the markets opened on Monday. The DreamWorks shares rose to a three-month high of $24.95 during the day’s trading before slipping to $24.17 at closing bell.
‘Home’ hits a home run at the box office
DreamWorks’ "Home" saw collections of $99 million, nearly 75% of its production cost of $135 million, from ten markets across the globe during its opening weekend. While the company witnessed such a compelling performance at the box office for a non-sequel movie for the first time with "Home," the new animated family movie also became the biggest-performing production from the DreamWorks stable in the last three years. The success of "Home" also surpassed that of DreamWorks’ 2014 release – "How to Train Your Dragon 2," the Oscar-nominated animated movie which was the company’s lone success in the last few years.
However, while rival Pixar Animation Studios did not see a release in 2014, the animated movie Big Hero 6 from the stables of Walt Disney (DIS, Financial) Animation Studios posted the highest box-office collections for that year with $632.8 million compared to $618.9 million generated by "How to Train your Dragon 2." Further, while "Home" is to be DreamWorks’ sole release in 2015, both Pixar and Walt Disney have considerably fuller slates for the year.
Diversification key to future success
DreamWorks, which has been grappling with sluggishness in its movie business as well as the inherent volatility of the movie industry at large, is also putting in efforts to expand beyond its current interests in movies and home videos. The company recently ventured into online programming with original content through a multi-year contract with Verizon Communications Inc. (VZ, Financial). As part of the deal, DreamWorks and its subsidiary AwesomenessTV will create 200 hours of live family entertainment programs for Verizon’s online video subscribers. The company also launched DreamWorksTV, its online TV channel, on Google Inc.’s (GOOG, Financial) YouTube, offering subscribers the combination of its library of original content and the digital proficiency of AwesomenessTV. Moreover, while DreamWorks plans to focus on producing original content for children-oriented animated TV series, the company has also struck a deal with Netflix Inc. (NFLX, Financial) for online video streaming.
Final thoughts
DreamWorks tasted its biggest box-office success in the last three years with its new release –Â "Home." With the animated movie drawing in strong collections from across the globe during its opening weekend, DreamWorks also saw its shares surging. However, the company is grappling with general sluggishness in its movie business and is trying to make inroads into newer areas such as producing original content for online video streaming, a segment where it will have to contend with significant competition. Experts are looking at an average annual earnings growth rate of 13.77% for DreamWorks over the next five years, with a peak expected in FY2016. Consequently, although skeptics are bearish regarding the DreamWorks stock considering the company has no further releases lined up for the year, it currently carries a "hold" guidance.
