Why Shares of Dreamworks Animation SKG Inc Fell

Is DreamWorks' stock move meaningful? Or just another movement?

Jun 16, 2014 at 6:20PM

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: DreamWorks Animation SKG Inc (NASDAQ:DWA) shares were taking a hit today, dropping as much as 13% and finishing down 11% after its new theatrical release How to Train Your Dragon 2 disappointed at the box office. 

So what: In its debut weekend, How to Train Your Dragon 2 brought in $49 million, but that was the less than the $65 million analysts had expected. The sum also placed it below 22 Jump Street in the weekend's box office rankings, which made $57 million. The original How to Train Your Dragon had made $43 million in its first weekend, and other DreamWorks sequels had made $60 million or more in their opening weekends, so expectations were high for the sequel, which has won acclaim from critics.

Now what: The movie cost DreamWorks $145 million to make, so the animation studio will have to count on a strong international performance for it to return a profit. With only one more theatrical release scheduled for this year, The Penguins of Madagascar, the performance of Dragon 2 was especially important, as the studio has struggled lately -- with DreamWorks shares tumbling earlier this year after it badly missed earnings estimates in its first quarter. The stock is now near 52-week lows, and considering the volatility in the movie industry, now could be a great time to pick up shares of an otherwise strong brand. 

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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