Digital Domain Media: Ender's Game Makes It Promising, But Still A Risky Stock

Mar.22.12 | About: Digital Domain (DDMGQ)

Digital Domain Media Group (DDMG) is a producer of visuals in movies and commercials, with horizontal expansion in the works. It was left out of Adam Muller's clever piece. Mr. Muller pointed out that buying Lions Gate Film (NYSE:LGF) was not the only way to profit from the blockbuster film "Hunger Games". He referenced a similar 2013 film, "Ender's Game", but opted not to mention Digital Domain Group, who is the primary developer of Ender's Game (with Odd Lott).

For those unfamiliar with Ender's Game, it is a book (like Hunger Games) that is about competitive children in a boarding school (like Harry Potter) that questions the nature of perception (like The Matrix) and teaches a lesson about humanity in an alien setting (like Avatar). Mark Zuckerberg of Facebook (NASDAQ:FB) lists Ender's Game as a favorite, and it is overall a unique story that speaks to several generations. By the way, a main character in this science fiction movie is played by none other than Harrison Ford. Its cast is blanketed with Academy Awards nominees.

The problem with Digital Domain was profit margins. It did visual effects for movies like Titanic and Benjamin Button, but this wasn't profitable enough, so now they're making their own movies (like Ender's Game) and developing degree programs. If you had teenagers who like to tell stories, would you want them to monetize that via a law degree, or something really useful? A credential in 3D animation falls into the latter category, and Digital Domain is Ivy League in its field. To show you how far they reach, Digital Domain is involved with an explosive niche invention which I have written about: Nike Flynit.

Shares are cheaper than the IPO:

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I'll be honest with you. I loved the book Ender's Game, which by the way wasn't supposed to be a children's book. I read it as a child and read it again as an adult. There is always the possibility the movie will not do the book justice, and there is always the possibility that the story will not be loved by audiences as I and many others have loved it. But I don't think this is a John Carter. I think Ender's Game the movie will be a little Harry Potter, a little Matrix, a little Avatar, a little Star Wars and a little Hunger Games (have I mentioned there are sequels...).

So although this is a risky stock, I think it is a little underpriced. Roughly speaking, one movie, John Carter, has lost Disney (NYSE:DIS) a sum of money equivalent to the entire market capitalization of DDMG. With a market cap of 230MM, Digital Doman Group offers an assymetric bet, which I feel has a good story.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.