Can Dreamworks Be Saved?
A couple of weeks ago the stock of Dreamworks SKG tanked after alleged reports of stock trading irregularities.That was prefaced by the company admitting it had overhyped growth and that sales of its Shrek 2 DVD were lackluster.
I never saw Madagascar, but apparently it wasn't the movie critics expected.
Speaking of expectations, isn't that the stuff Wall Street is made of?
Seemingly, the street's outlook for the beleagured movie studio gets bleaker everyday.
On Monday, the Times printed a ruthless story on Dreamworks, citing that CEO Jeff Katzenberg speaks too often to analysts and that he shoots lowball budget figures for the studio's latest releases.
The Times said that the budget for Shark Tale, for example, was millions of dollars higher than what the exec had reported to analysts.
Then the Times insinuated that it was because Katzenberg was the consummate salesman.
Um, duh.
What CEO isn't a cheerleader for his or her own company?
I think the problem has to do more with earnings guidance than it has to do with Jeff.
That's why I always warn investors to avoid the market during earnings seasons; sure, an earnings surprise can really pop your stock off the rocker, but in the overall scheme of things, I have little patience for the ups and downs, most of which aren't justified.
The market overreacts to short term news, anyway.
Dreamworks is clearly in trouble.
The company recently announced that earnings will miss expectations because of lower-than-expected DVD sales, and it will cancel a planned $500 million secondary stock offering.
I'm concerned about the secondary's cancellation (a secondary is like a 2nd IPO but often less lucrative) -- that is tell-tale sign that demand for the stock is dead.
It is a good move on behalf of management -- there is no need to further dilute the holdings of current stockowners.
Help may be on its way.
On Thursday, reports were released saying that GE's NBC Universal unit is in talks to buy DreamWorks, which was founded in 1994 and only became a publicly traded company recently.
During the IPO, Microsoft's Paul Allen, one of the first investors in the company, cashed out.
It was a good move.
Dreamworks isn't working.
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