DreamWorks Sings Like a Bee

You're in a good place if your star ogre is the color of money.

Stock Advisor pick DreamWorks Animation (NYSE: DWA  ) came through with a robust third-quarter showing, fueled by healthy box-office receipts from Shrek the Third. Revenues climbed 189% to $160.8 million, while earnings expanded nearly fivefold to $0.47 a share. (Check out last quarter's earnings.)

This doesn't make the computer animation studio an instant growth stock. This is a hit-driven business, so financials will be lumpy. Euphoric highs and meteoric lows are part of the show.

Wall Street knows this, but it was braced for a great quarter. With the pros expecting a profit of $0.44 a share on $165.6 million, the company actually missed on the top line, even as it flew past the bottom-line projection.

Shrek the Third has been a beast for DreamWorks Animation since its May release. The film has generated $793 million in box-office receipts, trailing only Shrek 2 and Disney's (NYSE: DIS  ) Finding Nemo as the highest-grossing animated films of all time.

Worldwide Gross

Shrek 2

$920 billion

Finding Nemo

$865 billion

Shrek the Third

$793 billion

Source: Box Office Mojo

Sure, the third installment in the series may get lapped by films like Disney's The Lion King if we adjust for inflation. Still, it's undeniable that Shrek has become the marquee franchise in animation. Even Disney's getting in on the green ogre, airing Shrek the Halls on its ABC network next month. The franchise's first holiday special won't be much of a financial contributor, but it should be one heck of a brand ambassador.

Shrek the Third's success contributed 57% of the company's quarterly revenues, yet the studio still had healthy DVD and pay-television receipts come in from Over the Hedge ($17.8 million) and Flushed Away ($17.3 million).

Even the older titles contributed $33.6 million to the top line. That's inspiring when you realize that the company will only continue to pad its library over the years.

The current quarter should be a strong one. Shrek the Third will be out on DVD in two weeks, and Bee Movie debuts this weekend.

Three unanswered questions
Since last night's conference call didn't address any of the questions that I have -- as both an analyst and a shareholder -- I figured I'd ask them out loud here, then attempt to provide the answers.

1. Will Bee Movie be a hit?
Yes. Jerry Seinfeld has been feverishly promoting the film. General Electric's (NYSE: GE  ) NBC has been running promotional spots throughout its weekly programming, including a SeinfeldVision guest appearance on 30 Rock earlier this month.

Seinfeld's push will continue over the next week, before he heads off for a five-week tour to promote Bee Movie overseas. That kind of dedication can work magic, provided the film is any good. DreamWorks Animation executives didn't go out on any limbs during the call regarding Bee Movie buzz, though they did point out that the film has tested well with both kids who love computer animation and adults who miss Seinfeld's weekly musings.

We'll know about Bee Movie right away. Hollywood's slate is loaded with kid-friendly fare to hook families as we get closer to the holidays, so if Bee Movie is going to buzz, it had better zip right out of the gate on Friday.

2. Why hasn't DreamWorks Animation hooked up with IMAX?
The bigger-than-life IMAX (Nasdaq: IMAX  ) experience is ripe for CGI eye candy. Unfortunately, it's mostly hosted cinematic duds like Sony's (NYSE: SNE  ) Open Season and Time Warner's (NYSE: TWX  ) Ant Bully.

It's really just a matter of time, though. Animation studios know what IMAX did for The Polar Express. DreamWorks Animation is even bumping up the 2009 release of Monsters vs. Aliens to take advantage of the most digital 3-D-equipped multiplex screens. So if the company is already thinking incrementally, an IMAX distribution deal can't be too far away.

The company announced that one of its 2010 releases will be a superhero send-up called Master Mind. Animated action? If Monsters vs. Aliens doesn't go IMAX, Master Mind should.

3. Is Shrek's success waning?
Are you nuts? Each Spider-Man sequel has drawn fewer domestic audiences than its predecessor, but you don't see Sony smarting over that franchise.

And let's be frank here: Shrek the Third was pretty lame. Don't take my word for it. News Corp. (NYSE: NWS  ) runs a site called Rotten Tomatoes, which weighs critic reviews as theatrical releases come out. The higher the percentage rating, the more critics who like the flick. Let's see how the franchise is holding up.

Critical Praise

Shrek

89%

Shrek II

88%

Shrek the Third

42%

Source: RottenTomatoes.com

Ouch. Can you imagine how well the company would have done if its third Shrek effort were actually a good one? Hopefully that -- and a potentially lukewarm response in the DVD market next month -- will motivate the studio to get the franchise back on track by the time Shrek 4 comes around in 2010.

There's a lot of green at stake, and I'm not talking about a chunky ogre.

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