CurrentOfferings.com Story:

DreamWorks Animation surges in debut

Matt Krantz, USA TODAY, October 29, 2004

Shares of DreamWorks Animation (DWA) soared more than 38% in their first day of trading Thursday after the animated film maker's initial public offering raised a higher-than-expected $812 million.

DreamWorks' shares were priced at $28 at the start of trading but closed at $38.56 on the New York Stock Exchange.

The initial price ended up being much higher than the $23-to-$25 range the company initially forecast.

DreamWorks Animations' owners, which include Jeffrey Katzenberg, David Geffen, Steven Spielberg, Microsoft co-founder Paul Allen and Microsoft itself, are the biggest winners and stand to make millions. Shares held by Katzenberg, Geffen and Spielberg were worth $190 million each at the IPO price. Allen's stake is worth $1 billion.

Perhaps the biggest stroke of genius, or luck, is the timing of the IPO, says Tom Taulli of IPO tracker CurrentOfferings.com. "They timed it perfectly," he says. For starters, the company priced the IPO just as the stock market is coming off back-to-back surges, a rare event recently. There's also:

�The hot IPO market. IPOs are enjoying a heyday not seen since 2000. Already this year, 163 IPOs have been done, up 140% from last year. They're performing well. Francis Gaskins, editor of IPODesktop.com, says the 100 most recently priced IPOs were up 26% through last week. The Nasdaq composite fell 3.4% the same period.

Sparks continue to fly in IPOs. Shopping.com Wednesday jumped $2.80 to $31.60 and is up 76% from its debut this week. Search engine Google has more than doubled from its IPO price.

�The Shrek sequel. DreamWorks Animation is expected to begin selling Shrek 2 on Nov. 5. The DVD's anticipated success gives investors an earnings driver to look forward to.

�Pixar's success. Shares of the No. 1 rival in computer-animated entertainment, Pixar (PIXR), are up 15% despite a weak market. That Wall Street success rubs off on this IPO, says Linda Killian, portfolio manager at Renaissance Capital. She adds DreamWorks plans two movies a year, double the one Pixar puts out.

Also, Shark Tale, DreamWorks Animation's most recent film, grossed $123 million from Oct. 1 to 21. That success assures investors the studio can deliver hits, Gaskins says.

There are risks. For one thing, the company relies heavily on parent DreamWorks for distribution. While the company turned a profit of $121 million the six months ended June 30, it lost money the previous two years. That underscores how Hollywood companies are, by their nature, risky and subject to hits and bombs. "It's a hit mentality," Gaskins says.