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What: Shares of Dreamworks Animation Skg Inc (NASDAQ:DWA) were stuck in a nightmare today, falling as much as 14% after a disappointing first-quarter earnings report.
So what: The animation studio said results were hurt by the weak box-office performance of Mr. Peabody & Sherman, as the company took a $57 million charge on its poor showing. As a result, Dreamworks posted a loss for the quarter of $0.51 per share, far worse than the $0.14 loss that was expected. Revenue increased 9%, to $147.2 million, beating estimates of $137.2 million, but investors were clearly focused on the bottom line. CEO Jeffrey Katzenberg expressed optimism that Dreamworks' next movie, How to Train Your Dragon 2, would deliver a box-office victory for the company.
Now what: The movie business is notoriously risky, as there's no way to guarantee a big-budget movie won't turn into a flop at the box office, so Dreamworks' big miss is, perhaps, not as bad as it seems. Still, the disappointing release of Mr. Peabody & Sherman casts doubt on Dreamworks' $155 million acquisition of Classic Media in 2012, though content from other Classic Media characters contributed $5.3 million in gross profit during the quarter. To combat the risk in film releases, the company is working on an initiative to expand short-form content, including putting some on YouTube, a move that underscores the hidden value in the company's character base. Keep an eye on non-box-office revenue growing forward, as that could insulate the company from future quarters like this, and drive the stock higher.
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.