How did you spend last weekend? Were you out shopping, by any chance? Perhaps down at the local Target (NYSE: TGT), Wal-Mart (NYSE: WMT), or Best Buy (NYSE: BBY), getting an early start on your holiday obligations? I bet many of you were, and maybe a few of you were making Steven Spielberg, Jeffrey Katzenberg, and David Geffen smile by picking up a copy of DreamWorks Animation's (NYSE: DWA) Shrek2.
DreamWorks Animation issued a release promoting the performance of Shrek 2 for the first weekend of November. Slightly more than 12 million units of the home video were sold. DVDs predictably dwarfed the VHS tapes as a percentage of units moved, with 11 million discs now in the hands of consumers. In terms of gross dollar amounts, the company estimates that it raked in $185 million. In contrast, the first Shrek feature moved about 7 million discs and tapes during its initial three-day debut.
There's no question that DreamWorks Animation is here to stay and that it offers some serious competition for Pixar (Nasdaq: PIXR), the company behind The Incredibles (check out how Shrek went head-to-head with the superhero family in this piece by Rick Munarriz). Not only did Shrek 2 do extremely well over the summer at theaters, but the recent Shark Tale proved a winner as well, although on a much smaller scale. Nevertheless, I think this one-two punch will impress investors.
Will DreamWorks turn into a force similar in magnitude to the Pixar brand? It's a tantalizing question, and difficult to answer. There is obviously a lot of interest in animated fare judging by the public's taste, which means that the supply of computer-generated cartoons is going to increase in the next several years. In theory, movies don't have to be a zero-sum game, but in reality they are; conglomerates such as Viacom (NYSE: VIA) and Time Warner (NYSE: TWX) will therefore be looking to take the bread out of the mouths of both Pixar and DreamWorks Animation. So buying shares of the latter does not come without risk.
Of course, anyone who purchased shares of Pixar years ago as a speculative bet has been well rewarded. The difference here is that times are not the same, and there's no guarantee that the love of Pixar-like products will sustain itself into the future. There's also the threat that Pixar could enter a phase of maturing growth (which certainly isn't likely, but all cons must be explored when it comes to investing).
Still, I think both Pixar and DreamWorks Animation are worthy long-term bets. Pixar is a strong brand, but DreamWorks is off to a great start as a company now beholden to the demands of Wall Street. It will be fascinating to see what investor sentiment tells us about the prospects for both.
More animated articles on DreamWorks Animation and Pixar:
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Steven Mallas
owns none of the companies mentioned.
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