What Does DreamWorks Animation’s Q3 Earnings Report Really Mean?

I’ve spent the better part of the last three hours reading online reports too numerous to count detailing the latest DreamWorks Animation earnings report [1].  I know less now than I knew before I started.  I’m not an analyst and I don’t play one on TV, but I’ve been known to work a spreadsheet or two in my day and push comes to shove, I can spell Charles Schwab.  So, it seems to me that since DreamWorks made money last quarter, which normally is considered a good thing, everyone should be happy right?  Guess again.

I bet I scanned at least 100 articles during this 3 hour exercise in carpal tunnel genesis, delving into news of the earnings report, trying to find any “analysis” rather than regurgitation of the same 2 items over and over again.  I can understand that the Lehigh Valley Live website money section may not be the hotbed of economic wisdom, but the lack of much more than a rehash essentially of the DreamWorks press release by some major financial players is a bit surprising.  Two possibilities – DreamWorks just doesn’t merit that type of attention from their analysts, or not enough people are paying attention to the animation business because there are so few public entities in the game and because animation just isn’t that big a deal in the grand scheme of the entertainment business. I think DreamWorks is extremely relevant and merits considerable attention, but then, I liked Iron Giant too.

The market (whatever that is) contains analysts (whomever they are) that are paid to tell us how well financially they expect public companies to perform (whatever that means). How they come to that assessment is anyone’s guess. I think it involves gross revenue, net revenue, earnings before taxes, deferred income and a Ouija board.  Plus lots of Red Bull.  It’s safe to say that recent performances by the financial industry prove to me that it’s probably safer to ask my cat for investment advice than the average “guru” playing loose and fast with the facts.  At least my cat purrs at the same time he’s digging his claws into my thigh. 

So DreamWorks beat the analyst’s expectations for the most current quarter, doubling revenue while announcing that Shrek 4 has become the company’s highest internationally grossing film of all time.  Sounds reasonable that would be a good thing.  Though a number of analysts were quoted as saying they thought that was a good thing, some analysts instead reported that Shrek 4 is the lowest domestic grossing Shrek film of the franchise, grossing less than Universal’s freshman outing Despicable Me in the US.  OK, you say “tomato,” I say “tomahto.”  Both seem reasonable.  Both contradict the other.

Forbes [2] and other outlets wrote that the successful mid-October DVD release of How To Train Your Dragon alongside the overall increased company revenue from all income streams may be clues to how consumers are spending money on entertainment in the midst of economic uncertainty.  In other words, if DreamWorks Animation can make money in this economy, that’s a good thing and might point to more good things in the future.  A few analysts advise to hold the stock without saying why.  Vague, but reasonable. 

Then, there is the Motley Fool.  I don’t follow the Motley Fool, though I can’t help but think of Nikki Sixx and Tommy Lee whenever I read the name. You know how that goes – you can’t get something out of your head once you think of it the first time.  It’s forever ruined.  Like when you hear Jefferson Starship’s “We Built This City.”  Think of that song and your entire day is ruined.  In a rather harsh article published yesterday, the site’s Rick Munarriz proclaimed that we should “Throw This Stock Away [3],” saying that the company’s financials are “as lumpy as Shrek’s toadstool stew” and that “I'm not sure if I want to be the one holding shares of DreamWorks Animation on the other side of Megamind's opening weekend. “  Ouch. 

I guess my point is that although I’m not an investor, I realize that financial market analysis is based on data and issues that have nothing to do with whether or not you like a company’s products, or in this case, think Megamind is going to be the next DreamWorks Animation franchise.  I just wish that it was a bit easier to discern good news that’s good, from good news that’s bad.  I also wish that the pressures to exceed the analyst’s expectations meant good things for our industry.  I’m not sure that’s always the case and of course, if you follow many industry blogs, it’s the pursuit of such financial gain that destroys everything that’s magical about animation. Even more so than most experimental animation films.

So today, I’m just happy that for the moment, DreamWorks Animation had a great quarter, most analysts are happy and I’m looking forward to seeing Megamind this Saturday on my birthday.