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Why 'How To Train Your Dragon 2' Is Another DreamWorks Disappointment

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DreamWorks Animation (NASDAQ: DWA) can't catch a break.

The company's shares plummeted more than 10 percent today after investors learned that How To Train Your Dragon 2 failed to secure the number-one spot at the box office.

The crown went to Sony's 22 Jump Street, which earned $60 million during its first weekend. This was a significant increase over its predecessor, which earned $36.3 million in its first three days at the box office.

How To Train Your Dragon 2 came in second place with a domestic haul of $50 million. This is an improvement over the original film, which earned $43.7 million when it opened in March 2010.

Related Link: Will Kids Watch 300 Hours of DreamWorks Programming on Netflix?

How To Train Your Dragon 2 is not a flop. But DreamWorks hyped the animated movie with a massive marketing campaign and a TV series that preceded the second film. This fueled the belief that How To Train Your Dragon 2 would become a massive hit.

Sterne Agee analyst Vasily Karasyov told Benzinga that while he does not know why How To Train Your Dragon 2 underperformed, the appeal "was not as broad as optimists believed."

"If we knew the recipe, there would be no money-losing films," said Karasyov. "Sometimes it works, sometime it doesn't. This time it worked okay, it just didn't work as well as people expected. I bet you the studio hoped for more. Fifty million dollars is not a disaster, it's just not a big enough box office relative to the production and distribution costs."

According to The Hollywood Reporter, How To Train Your Dragon 2 carried a budget of $145 million.

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Nightmares, Not Dreams

Hit movies have been few and far between for DreamWorks.

The studio traditionally spends more than $100 million to produce each film, and theaters tend to take roughly 50 percent of all ticket sales. This makes it very difficult for DreamWorks to claim "hit" status, even on a film that grosses $200 million domestically.

The Croods is often cited as a DreamWorks success story (thanks to its worldwide tally of $587 million), but Karasyov said that we shouldn't get too carried away in thinking that's a hit.

"It's not a hit," he said. "It's a film that did not lose money. It's supposed to make money! The point of making films is to make money. That's part of the problem. They've pumped up this Dragons franchise, and it was the same business that Wreck-It Ralph did. No one goes around saying that Wreck-It Ralph is this beloved franchise. It's a film that worked okay. But you're not sitting on the edge of your seat in anticipation of Wreck-It Ralph 2."

That said, Disney might produce a sequel to Wreck-It Ralph, which earned $471 million worldwide.

How To Train Your Dragon fared slightly better with global ticket sales reaching $494 million.

"They're making it seem like it was Star Wars," said Karasyov. "It's just a film that did fine."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Latest Ratings for DWA

DateFirmActionFromTo
Nov 2014Bank of AmericaReinstatesNeutral
Oct 2014Janney CapitalDowngradesBuyNeutral
Jul 2014Ascendiant CapitalDowngradesBuyHold

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