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DreamWork Animation: Can Recent Alliances Drive Growth?

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On May 20, 2016, we issued an updated research report on DreamWorks Animation SKG Inc. , a developer and producer of feature films, television specials and live entertainments.

DreamWorks performed well during the first quarter of 2016, with both earnings and revenues beating the respective Zacks Consensus Estimate. Quarterly revenues also climbed 14.4% year over year to $190.4 million and the company recorded operating income of nearly $14 million. In particular, the New Media segment put up a strong performance, with revenues skyrocketing 230%.

DreamWorks’ AwesomenessTV has an agreement with Alphabet Inc.’s (GOOG - Free Report) YouTube to release several feature films on the video-sharing site over the next two years. DreamWorks has also strengthened its multi-year global licensing deal with Netflix Inc. (NFLX - Free Report) to produce a number of new original series for the latter. We believe that such partnerships will continue to drive company's top line, going ahead.

Moreover, DreamWorks has taken several steps to improve the film making process to cut down production costs. As a result of these efforts, average film production expenditure was decreased significantly since Nov 2013.

On the flip side, volatility in the movie business, rising marketing expenses and a lower number of movie releases has resulted in persistent losses for the company. Unlike Viacom Inc. , DreamWorks lacks business diversification as the company’s Feature Film segment contributes to more than half of its total revenue. This segment performed dismally in the first quarter, wherein its revenues tanked 26.7%. Continued below-par performances at the segment could hurt the stock significantly, going forward.

DreamWorks Animation currently has a Zacks Rank #3 (Hold).

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