DreamWorks Animation's (NASDAQ:DWA) shares got a nice boost after DreamWorks' new movie Home ranked number one in box office ticket sales during its opening weekend starting March 27th. During our Easter holiday, my family and I saw Home. I was excited to see the movie, hoping to reinforce my long term bullish view on DreamWorks as well.
Unfortunately, I was unimpressed, and I'm not the only one. Most major critical review sites, such as Rotten Tomatoes and MetaCritic, felt the same way. Is this movie really as good as some investors who boosted the stock think it is?
Why DreamWorks will release only 1 movie this year
I was still bullish on DreamWorks after Jan. 22 when the company announced plans to lay off up to 500 employees and restructure its film business and management. This included selling the DreamWorks headquarters in California, but staying in the space as a renter while focusing on bringing property and other costs under control.
DreamWorks released three movies in 2014, but because of this restructuring has decided to release just one movie in 2015, and two movies each of the next two years. Focusing on a single movie this year was an opportunity for DreamWorks to produce one, high-performing movie to set the company up for returning to profitability over the next couple of years. I'm not so sure that Home is that movie.
Home is profitable, but is that enough?
As of 2 weeks after its release, Home has broken $200 million in worldwide box office ticket sales. With a production cost of $135 million, the film's total cost of marketing, distribution, etc. is probably just below $200 million (we'll see actual total cost when quarterly earnings are released). It's encouraging to see that Home is already driving 2015 profits for DreamWorks in such a short time. With a few more weeks in theaters, DVD release, and of course merchandise sales and licences, Home is likely to prove a revenue success for DreamWorks this year.
But what concerns me is that Home has received such poor reviews. Home received a weak 46% approval rating on the film critique site Rotten Tomatoes, DreamWorks' lowest ratings from the site in eight years. The website's critical analysis said that "Colorful, silly, and utterly benign, Home is a passable diversion, but there's no shortage of superior animated alternatives." The last time DreamWorks received such a dismal rating was with Bee Movie in 2007. Since then, DreamWorks films have had an average rating of 77% before Home. Home's poor review isn't going to get audiences excited for what DreamWorks releases in 2016.
Getting back to profitability
Of course, we can't expect one film in 2015 to make up for DreamWorks' $90 million loss in 2014 despite releasing three movies that year. But a highly successful new film that might spark a franchise, like Shrek or How To Train Your Dragon, would have helped. Nevertheless, it's encouraging that Home has already been profitable for the company just two weeks after opening.
Hopefully, the current restructuring will cut costs and help to ease similar losses going forward, setting DreamWorks up for long term success. But investors who boosted shares of DreamWorks after Home's opening weekend might be a little early in thinking that Home is going to have much effect on the company's long term growth.