Spurred on by a large, green ogre, buoyed by a school of wise-cracking fish and with a podgy superhero helping its cause, DreamWorks Animation yesterday saw its share price rise by 41% on its first day of trading.
While the company had estimated that its shares would achieve $23-$25, early trading yesterday saw the price rise to $39.25. Those transactions came after the animated film studio's initial public offering raised $812m (£444m).
The timing of DreamWorks' offer could not be better. The company, formed by director Steven Spielberg, music executive David Geffen and former Disney chief Jeffrey Katzenberg, is still basking in the success of Shrek 2, which grossed $880m at the box office worldwide by the end of September.
Its new release, Shark Tale, has just been knocked off the top of the US box office ranking after taking $227m worldwide since its release at the beginning of October, while expectations are high for a Wallace & Gromit feature due next year. Even the impending release of The Incredibles, an animation feature from DreamWorks' rival Pixar, is thought to have helped the company's share issue.
The company sold 25m shares and its investors sold 4m at $28 each, raising $812m. By mid-morning, 15m shares had traded on the New York Stock Exchange.
If underwriters Goldman Sachs and JP Morgan Securities exercise an option to buy 4.35m more shares, the offering could raise $933m.
Investors hope the company will use the money raised by the share offer to invest in new films, enabling DreamWorks to challenge main rival Pixar.
The company said yesterday that it plans to use $175.5m of the proceeds from the IPO to fund its business, and the balance to pay off $405m of debt.
Some analysts said it will be some time before the firm can establish the brand loyalty and recognition enjoyed by its rivals in the animated film market. "You have to have a lot of tolerance for risk when you buy into the filmed entertainment business," Peter Guber, head of Mandalay Pictures told Bloomberg.
DreamWorks Animation, he said, has "no brand recognition that Disney has. DreamWorks needs another generation of parents growing up to create a brand bond". But with a third instalment in the Shrek series due in 2006, analysts think that prospects are bright for the company.
Robert Routh, an analyst at Jefferies & Co in New York, told Bloomberg: "How the shares are going to perform depends on the financial performance of the company. I'm not surprised the stock did so well. The IPO was way oversubscribed."
DreamWorks' profits will be determined by the success of its films. While the company does not boast other interests, such as Disney's theme parks, a box-office dud could damage its profitability.
DreamWorks Animation, which has a market value of $2.14bn, has been profitable in one of the last three years. In that period it reported a loss of of $210m.
