DreamWorks Shares Soar 38 Percent

Shares of DreamWorks Animation SKG Inc. soared nearly 38 percent on the first day of trading Thursday as investors anticipated Shrek-sized profits from the computer animation film studio.

Shares in DreamWorks' initial public offering were priced at $28 at the start of trading but closed at $38.56 on the New York Stock Exchange.

Analysts touted the company's short-term profit potential while cautioning about long-term risks, including its aggressive plan to release two animated films a year.

Rival Pixar Animation Studios releases one film a year. Until Thursday, Pixar had been the only other U.S.- based publicly traded computer animation firm producing primarily feature films.

DreamWorks Animation, ticker symbol "DWA," offered 29 million shares to the public - 4 million of which were sold by company executives. The firm will receive $659.8 million after underwriting discounts and commissions.

DreamWorks co-founder Jeffrey Katzenberg and company Chairman Roger Enrico rang the opening bell at the stock exchange to herald the IPO. They were joined by film director Steven Spielberg and David Geffen, who formed DreamWorks SKG 10 years ago with Katzenberg.

"To see this kind of vote of confidence in them from the investment community is really gratifying," Enrico said.

DreamWorks Animation is a spin-off of the parent company, which will remain privately held and continue to produce live-action films.

The highly anticipated IPO was oversubscribed and the company said it would give its underwriters a 30-day option to purchase up to a 4.35 million additional shares of common stock to cover any over-allotments.

The money will be used to pay debt involving separation from its parent company and to finance the production of future films.

The company's public debut came a week before Pixar releases its sixth film, "The Incredibles," through a distribution deal with The Walt Disney Co.

Katzenberg said there is enough room in the marketplace for both companies.

"We look at them more as a sister company and one that we admire," Katzenberg said. "The degree to which we compete is we would like to enjoy the same success they have."

Shares of Pixar increased 91 cents Thursday to close at $80.73 on the Nasdaq Stock Market.

While Katzenberg was studio chief at Disney before his departure in 1994, he played a key role in developing the relationship with Pixar and shepherding its first film, "Toy Story."

"I give all the credit in the world to Pixar," Katzenberg said. "But competition is a good thing for us. Our movies have a different style and a different look to them."

Analysts said DreamWorks will continue to benefit in the short-term from the home video release of "Shrek 2" and "Shark Tale." The studio will release two films next year, including "Madagascar," featuring the voices of Ben Stiller, Chris Rock and Jada Pinkett Smith.

But the company must still prove it can deliver consistent hits, like Pixar, and compete against a growing number of companies that have said they will ramp up their own production of computer-animated films, analysts said.

Other risk factors for the stock include the fact that 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.

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.

Katzenberg said that 10 years of producing both computer-animated and hand-drawn films has prepared DreamWorks to compete, both on the silver screen and on Wall Street.

"In 2001 we hit with 'Shrek' and with that we really found our creative and our business groove, if you will," Katzenberg said. "We've done our research and development as a private company, on our nickel, and now that we have an opportunity to have investors and shareholders, we think the best is yet to come."

DreamWorks has had its share of flops in the past, including last year's hand-drawn feature "Sinbad: Legend of the Seven Seas." Its first animated television series, "Father of the Pride," has received lukewarm ratings on NBC.

By Gary Gentile