The animated sequel drew $50 million in the domestic U.S. over the past weekend, falling short of projections that the movie would gross north of $60 million. The miss in revenue led Dreamworks' share price to sharply drop nearly 12% from $27.35 on Friday to the mid-$24 range Monday and Tuesday.
"The stock is definitely going to being volatile to opening weekends given that they only have three movies per year and they're not diversified enough with TV and other things to help offset weaker openings," said Eric Wold, an analyst with B. Riley, to Variety.
One of the reasons for the pronounced move lower is that Dreamworks is on a bit of a cold streak with its recent box office releases. Rise of the Guardians, Turbo and Mr. Peabody and Sherman all underwhelmed critics, while resulting in write-downs for the studio. Expectations were thus very high for the new How to Train Your Dragon movie, since a success would help offset some of the previous weakness.
It should be noted that the studio's stock fell after the opening of the original How to Train Your Dragon and Kung Fu Panda 2, which both ended up being very successful and lucrative for the studio.
DreamWorks Animation was not available to comment upon request.
The moral of the story should be that, yes, a poor box office debut can adversely affect the price of a studio's stock. But in the end, if the company can still derive meaningful revenue from the film, it is a winner.
At the time of publication, the author had no position in any of the funds mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.