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Why DreamWorks Shares Soared

By Jeremy Bowman - Updated Nov 17, 2016 at 4:13PM

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Is this meaningful? Or just another movement?

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: Shares of production studio DreamWorks Animation ( DWA ) were flying higher today, up as much as 11%, after Madagascar 3 led it to an especially profitable quarter.

So what: Revenue in the quarter increased 16%, to $186.3 million, while EPS jumped to $0.29, crushing estimates of $0.11. To date, Madagascar 3 has brought in nearly $720 million at the box office worldwide, making it the fifth highest-grossing film of the year. Puss in Boots also delivered about a quarter of the studio's revenue in the quarter. The success of Madagascar 3 also bodes well for the fourth quarter, where it will drive home video and international box office sales. CEO Jeffrey Katzenberg said The Rise of The Guardians, due out Nov. 21, should have a major impact on the bottom line, as well.

Now what: The success of Madagascar 3 is certainly a boon to shareholders but, due to the nature of the industry, this is essentially a one-time event. DreamWorks will continue to reap rewards in video sales, but the value of the stock will depend on future hits. Ultimately, this report should not affect your investing thesis. If you had confidence in DreamWorks before to deliver box office hits, this report should only serve to reassure you. If you see the company or industry as too risky, there's no reason this should change your mind.

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