'Puss in Boots': How it Won the Weekend Box Office, But Disappointed Wall Street
UPDATED: "Unexpected weather played a role," says Janney analyst Tony Wible, adding that its opening implies that the "Shrek" franchise "is completely out of momentum, which will increase pressure on DWA to find new franchises."
NEW YORK - Some Wall Street analysts Monday morning expressed disappointment with the winning weekend box office performance of DreamWorks Animation's Puss in Boots, despite citing early winter weather on the East Coast as a contributing factor.
At least one observer also argued that the film's weaker-than-hoped open is a sign that DWA must focus its energy on finding new franchises, while analysts cited hope that the movie could play well next weekend amid a lack of competition from other family fare.
DWA shares fell 9.3 percent to $18.24 in early Monday trading.
"While we were bracing for a weak open on Puss in Boots, the debut was even worse than our bearish numbers with the film only grossing $34 million (versus our $47.8 million estimate)," wrote Janney Montgomery Scott analyst Tony Wible, who has a "neutral" rating and $17 fair value estimate on DWA shares, in a report. "At a typical ratio of 3.5x this would imply the film would only gross $119 million in the U.S. versus our prior $195 million estimate."
He added: "It is clear, however, that unexpected weather played a role in these initial estimates and we are willing to believe the company could see a 4.5x ratio." And "fortunately, families will find a dearth of alternative animation in theaters," the analyst emphasized.
As a result, Wible lowered his U.S. box office estimates on Puss in Boots to $153 million and his international estimate to $461 million. He also cut his DVD and TV license revenue estimates and, as a result, his 2011 and 2012 earnings estimates.
Beyond the impact of the movie itself, Wible argued that it was proof for the "death of Shrek." After all, Puss in Boots is the fifth film in the Shrek universe, and "its disappointing open implies the franchise is completely out of momentum, which will increase pressure on DWA to find new franchises," he said. "This is one of the core issues with DWA as it has failed to find new franchises to compensate for the rapid decay in its legacy properties."
Meanwhile, Stifel, Nicolaus analyst Benjamin Mogil also said that the Puss in Boots opening was below his $40 million-$45 million estimate.
He lowered his domestic box estimate from $160 million to $130 million and his U.S. DVD sales estimate from 5.1 million units to 4.5 million. "The result is that the film's full life earnings per share impact declines from 38 cents to 18 cents," he said.
Mogil continues to have a "sell" rating and $15-$16 fair value estimate on DWA.
"We do not believe that the Halloween weekend timing was detrimental to the film," Mogil said. "Halloween is a tough weekend for films targeting the 15-25 year old demographic, but not a major issue for the CG-animated demographic. It is unclear what the impact from the weather issues in the Northeast."
Mogil said his research indicates that the New York region underperformed by only 0.15 percent because of the weather. His conclusion: "The key for the film's performance will be next weekend as Cinema Score ratings were positive and the weather issues are behind us."
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