DreamWorks Animation SKG Inc. (DWA): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
We initiate our coverage on DreamWorks Animation with a Neutral recommendation. The company reported better-than-expected financial results in the first quarter of 2014. Both the top and bottom line surpassed the respective Zacks Consensus Estimate. DreamWorks is diversifying its Feature film segment to mitigate volatility in the film business. Management has decided to invest in key growth areas in order to expand the company's operations into TV, consumer product, digital content and location-based entertainment. DreamWorks believes that exploring all options is the best way to optimally monetize its large portfolio of intellectual property rights. However, the company needs to continuously come up with box-office hits in order to sustain growth. We believe that DreamWorks is fairly valued at this stage.

Overview:

Founded in 1985, DreamWorks Animation SHG Inc. is a developer and producer of feature films, television specials and live entertainments and is headquartered in Glendale, CA. DreamWorks emphasizes on computer generated animated feature films for a broad movie-watching audience. The company offers animated feature films and characters primarily in theatrical, home entertainment, digital, television, merchandising and licensing, and other markets. DreamWorks also licenses its characters, film elements, and other intellectual property rights to third parties. It has strategic alliances with McDonalds, Hewlett-Packard, and Intel.

DreamWorks Animation operates through four reportable segments such as:

Feature Films: This segment consists of the development, production and exploration of feature films in the theatrical, television, home entertainment and digital markets. The segment accounted for nearly 74.8% of the total revenue in the first quarter of 2014.

Television Series and Specials: This segment develops, produces and explores television, direct-to-video and other non-theatrical content in the television, home entertainment and digital markets. The segment accounted for over 12.2% of the total revenue in the first quarter of 2014.

Consumer Products: This segment offers the company's merchandising and licensing activities related to its intellectual property rights. The segment generated 8.2% of the total revenue in the first quarter of 2014.

Other: This segment includes revenues from ATV and live performances. The segment generated the remaining 4.8% of the total revenue in the first quarter of 2014.

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