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Monsters vs. Aliens Not Enough for Dreamworks

|Includes: Dreamworks Animation SKG Inc (DWA)

I've written catuious commentary since Monsters vs. Aliens opened to $59 million in North America, in line with analyst estimates.  The second weekend saw a drop of 45%, which is on the high side.  The film is tracking close to Ice Age 2 over the past week but is $10 million behind overall.  Ice Age 2 did $195 million so a figure around $180 million for MvA seems like a plausible estimate.  This is a decent figure but is not enough to drive DWA shares higher.

Where the shortfall may be higher is in international box office.  Opening weekends around the globe are well behind Kung Fu Panda and Madagascar 2, andin the few markets such as Russia, where the film has been open for at least two weekends, the grosses look signficantly behind KFP and Mad 2.  KFP did $416 million outside of North America.  Madgascar 2 did $414 million abroad.  It looks to me like MvA will fall far short of these two films, potentially leaivng the global gross at less than $500 million.  For DWA shares, that is a disappointing figure.

DWA was downgraded earlier this week by Rich Greenfield of Pali Research on concerns about the international numbers.  Rich also asked a good question: will the dominance of the 3-D version of the film hurt DVD sales since 3-D is not available in the home?  This is a critical question as DVD sales, even at recent lower tie ratios (ratio of DVD sales to box office), are the driver of EPS.

I think DWA shares are without a catalyst for the next six months with risk to the downside if MvA box office continues to lag Wall Street expectations.  Downside risk exists to mid-teens if earnings fall to current low end estimates. In the very near-term, expect more cautious comments from analysts on the international box office numbers.