DreamWorks Animation Inc. shares rose well above their initial public offering price Thursday as trading began in stock of the company behind the recent hit films “Shrek 2” and “Shark Tales.”
Shares of the film studio were priced late Wednesday at $28 — above a range of $23 to $25 in its prospectus — as analysts forecast strong performance for the company in the near term. Its shares closed Thursday's trading session at $38.75 a share.
The IPO also benefited from its proximity to the opening of “The Incredibles,” the latest computer-animated film from its chief rival, Pixar Animation Studios.
“It’s the right time to do it,” said Harold Vogel, a financial analyst with Vogel Capital Management.
At its offering price, DreamWorks will raise $812 million from the 29 million shares it will make available in its initial public offering. The company said it would give its underwriters a 30-day option to purchase up to an additional 4.35 million shares of common stock to cover any over-allotments.
The company is spinning off from its parent, DreamWorks SKG, formed 10 years ago by Jeffrey Katzenberg, Steven Spielberg and David Geffen.
While DreamWorks is the author of the largest-grossing animated film ever, analysts said the company must still prove it can deliver consistent hits other than its popular “Shrek” series. It also faces considerable competition from Pixar and other companies, including The Walt Disney Co. and Twentieth Century Fox, which are making computer-animated features.
After the IPO, Katzenberg and Geffen will have 93 percent voting control of the company, leaving individual investors with almost no voice regardless of how many shares they own.
And insiders, such as Spielberg and early DreamWorks backer Paul Allen, can begin selling their shares after six months, creating potential downward pressure on the stock. Allen is believed to want a return on the more than $500 million he has already sunk into the company.
DreamWorks Animation will also be carrying heavy debt and will need financing to support its ambitious slate of two features per year.
But the near future looks bright for DreamWorks Animation, which is slated to release two films next year, the computer-animated “Madagascar” and the stop-action “Wallace & Grommit” movie. The company is also planning “Shrek 3” for 2006.
“What they are doing is taking advantage of their success with “Shrek 2” in theaters, but in addition, they will have the “Shrek 2” DVD coming out in November,” Vogel said.
The DVD of “Shark Tale” will hit stores early next year, giving the company another financial boost.
Shares of the company could rise to slightly higher than $30 per share in 2007 based on its planned film slate and the home video revenue of “Shrek 3,” Richard Greenfield of Fulcrum Global Partners, wrote in a recent note.
But DreamWorks has had its share of flops in the past, including last year’s hand-drawn feature “Sinbad: Legend of the Seven Seas.” And its first animated television series, “Father of the Pride,” has received lukewarm ratings on NBC.
And then there is Pixar.
The studio has never had a flop and its latest film, “The Incredibles,” will be released next week by Disney.
“Pixar is the gold standard by which everything is judged in this industry,” Vogel said.