Wall Street cautious on 'Shrek' effect

Shares for DWA fell 11% after fourquel opened

NEW YORK -- DreamWorks Animation shares fell 11% Monday after the studio's final "Shrek" installment opened with weaker-than-expected weekend boxoffice revenue.

Wall Street analysts called the opening results disappointing, but expressed hope that the film will replicate the staying power of previous DWA release "How To Train Your Dragon."

DWA's stock finished at $31.05 after going as low as $30.09 intra-day on a day that also saw the broader market fall. The decline left the stock closer to its 52-week low of $25.70 than its high of $44.77.

Janney Montgomery Scott analyst Tony Wible, who rates DWA shares at "neutral," warned that Street financial estimates for the company may have to come down.

He argued that they do not yet "adequately discount weaker performance on 'Shrek' and 'Dragon' and the absence of a third film next year."

While "Shrek Forever After" broke the record for the widest release of a PG-rated film, including a run on around 200 Imax screens and nearly 2,400 Real-D screens, it earned mixed reviews, with analysts highlighting a 54% on Rotten Tomatoes and a 58/100 on Metacritic.

The film's estimated $71.3 million first weekend U.S. boxoffice compared to estimates of $80 million-$120 million.

It is "significantly lower than (our) $115 million estimate and the opening weekend performance on the last two Shrek films (such as the $121.6 million for "Shrek the Third") despite the sizable 3D premium attributed to this latest installment," Wible said, adding that this makes it the second DWA film in a row to miss expectations.

Based on past DWA film releases, Wible estimated $250 million in U.S. gross with a $207 million-$292 million range, "well short of our $390 million ultimate projection."

But he also highlighted that "Dragon" has since a lower-than-expected $43 million opening "managed to provide an abnormally long tail of contribution" with $210 million in U.S. boxoffice. "This rebound is tied to the quality of the film and the heavy post-release P&A," Wible said. "Nonetheless, this rebound provides some hope that 'Shrek' can stage a comeback."

Wedbush Securities analyst Michael Pachter, who also rates DWA shares at "neutral" with a $44 price target, made similar arguments.

Calling the final "Shrek's" performance "somewhat disappointing," he also expressed hope it will breathe some boxoffice fire in the coming weeks.

"'Dragon's' staying power and licensing deals suggest that there may be long-term revenue upside for "Shrek" and DreamWorks' other future releases," Pachter argued. "Although Dragon opened somewhat modestly, it remained among the top-three grossing films for each of its first seven weekends. "Shrek" is an established franchise playing in a larger number of 3D-equipped venues, so we expect it to display similar staying-power and to generate boxoffice similar to "Shrek The Third," which grossed $794 million worldwide."

Importantly, he said it will not face serious competition for younger audiences until June 18 when "Toy Story 3" is released.

Wunderlich Securities analyst Matthew Harrigan titled his Monday note to DWA investors with a reference to the German word for "awful": "Shrek Not Quite Schrecklich (Schrecklich German Double Entendre)."

Despite a disappointing haul, the movie still brought in the fourth best-ever animated opening weekend, with the "Shrek" franchise commanding three of the top four positions, Harrigan highlighted.

"Weakly reviewed and received "Shrek" appears ready to head to marsh," he then continued the puns.

Harrigan argued that the film was unlikely to reach $250 million in the U.S., pointing out that "Shrek" opening weekends "have gotten successively larger and constituted higher percentages of a smaller final gross."

That means the final installment of the franchise could do only $190 million, "although it should get a Memorial Day boost," he concluded.

And he offered a possible explanation for weaker-than-hoped boxoffice in New York City -- high ticket prices. Most notably, AMC's Imax theater in the Big Apple charged $19, "possibly deterring some family attendance," Harrigan offered.
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