DreamWorks Schooled

A lesson in humility from Steve Jobs? Who would have thunk it.

It happened Tuesday, though. Wall Street expected animation giant DreamWorks (DWA Quote - Cramer on DWA - Stock Picks) to follow up last week's strong report from Jobs' Pixar (PIXR Quote - Cramer on PIXR - Stock Picks) with its own solid gains.

But instead, DreamWorks execs found themselves red-facedly admitting that they recorded no DVD sales for Shrek 2 in the first quarter, due to heavy retail returns. The company slashed full-year guidance, saying it would basically break even the next two quarters. That's not what investors wanted to hear, and it prompted a 20% selloff in the stock over two days.

Clearly, the stock's plunge should teach CEO Jeffrey Katzenberg & Co. a lesson in dealing with investors. It's not unfair to wonder if someone at DreamWorks should have anticipated a slowdown in DVD sales, regardless of the fact that Shrek 2 got off to a record-setting pace last fall.

Analysts on the call reproached the company, asking execs when exactly they got a sense that DVD sales picture wasn't as rosy as expected. Katzenberg's crew came across like kids hiding report cards from their parents.

The excuses followed: These things are hard to track; this was such a big gargantuan hit we just thought it would grow and grow and grow; how do you model for such incredible retail sales, the purple dog ate my homework. Wall Street doesn't give a tinker's damn if the dog ate your homework.

Still, a little perspective might be helpful. Shrek 2 is No. 7 in all-time worldwide box office, according to Internet Movie Database. It is the highest-grossing animated film of all time, hitting over $880 million.

More perspective: Shrek 2 nearly doubled the box office take of the original Shrek, and did double the take at Toy Story and the Ice Age. It beat out Pixar's Finding Nemo by a hair and The Incredibles by about $250 million. It has sold 35 million DVDs. Yesterday, the green ogre finally burped.

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