Following up on my last post on Dreamworks, I went back in time and started doing some investigation of Pixar and Disney’s acquisition of them.
Now, I don’t think Dreamworks is as valuable as Pixar. I think Pixar’s movies have a bigger emotional appeal, and Disney really needed Pixar’s talent to re-infuse their own movie studio (there’s an excellent discussion of how much Disney needed Pixar in Steve Jobs biography).
But, at the same time, Dreamworks has some advantage Pixar didn’t.
- Pixar was much smaller at the time of the acquisition, with just six films in their library (see their 10-K).
- Pixar’s movies were always branded “Disney Pixar”. It would have been strange to lose that if/when the two split.
- Disney’s distribution agreement w/ Pixar was much more all encompassing than Dreamwork. Disney basically got a cut of everything, and split ownership of the characters and ip that stemmed from movies (except Disney fully owned the Toy Story rights) and Disney owned / controlled the rights to sequels (with Pixar having small options to co-invest).
So, while Pixar had a ton of value from their small film library, and the two (Disney and Pixar0 clearly needed each other, Dreamworks is probably in a better standalone position than Pixar ever was.
All that said, here’s the press release announcing the acquisition (you can also see the slides, but I don’t think they add anything). Note the valuation- $6.3B EV. Remember, Pixar had just six movies in their library, plus two pending releases (Cars and Ratatouille).
So here are some other things I found interesting
This interview right after the acquisition was announced. Two things stand out.
- Disney had distributed 6 Pixar films that had grossed more than $3b. They paid twice that to buy Pixar (it also worked out to 32x EBITDA).
- This exchange
Elizabeth Vargas – Bob you are spending $7.4 billion dollars as we said, to acquire Pixar. That’s more than a lot of people had speculated Disney would spend. Is it a good deal for Disney?
Bob Iger – It is a good deal for Disney because making great content is the most important thing we can do as a company and making great feature animation is incredibly important. If you look at the history of the company during the periods of time that we have been at the top of our game in feature animation, the company has really flourished, and it’s incredibly important for us to return to those days. As I considered all the different options of how to do that, I realized that, first of all, you need great people to do that, but then you have to find them, and I found them in Pixar. In a way they were kind of right before our eyes since we have had this partnership over time and while you know there are always complexities and risks associated with any acquisition, I felt that they were all worth taking given how important this business is to the company and given how enormously talented these people at Pixar are. Just look at their success rate and consider what they can continue to do and you conclude that this is a great thing for the shareholders of The Walt Disney Company.
Combine that interview with this quote from their CFO on the conference call announcing the acquisition
But you asked about the synergy piece. I’m not going to allocate the synergies specifically to different buckets, but I think you should assume that we feel that the lift creatively and across the rest of the business units from this acquisition is a very important part of the equation for us.
I think that just continues to show that companies place a very, very high premium on controlling not just the intellectual properties these firms create, but also the intellectual capital (the people who create the properties).
There’ve also been a lot of comments questioning the value of the movies. Check out this interview from Disney’s CEO announcing the deal. Specifically,
When you think about these products, when you talk about them as films, they are not really just films. Cinderella is a great example. We released a DVD of Cinderella this past fall. It’s a 55-year-old movie and we’re on course to sell over 10 million DVDs – and it’s worldwide. You can buy Cinderella costumes at Wal-Mart and go to Cinderella Experiences at our parks and go to our castles and read Cinderella books and play Cinderella video games. And so thinking about these things – when they are right, I think just thinking of them as movies is very narrow minded.
And what Pixar has managed to do is to create five great franchises, and it is on course to create many more and that is why we (indiscernible) of the Company.
It’s been over ten years… and Shrek is still enjoying runs on pay TV. Does it having the staying power of Cinderalla? No, probably not… but it still has long lasting appeal. And that long lasting appeal carries very, very high margins.
That interview also contains quotes talking about the opportunities for Disney to monetize Pixar’s characters in a way Pixar couldn’t. There are simply synergies that a global media behemoth can take advantage of when pushing characters through. The same thing would apply to a Dreamworks and (insert any major media company you want here).
So, again, I don’t think Dreamworks is as good a company as Pixar. I don’t think they’re in play. But I don’t think either of those two matter at today’s price: Dreamworks is trading way below what I think they could literally run the business off for, they have huge opportunities for growth, and if they were put up for sale, I think you’d have a variety of parties willing to offer well in excess of today’s share price for the company.
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Whopper,
If you were to go back in time and consider yourself as a Disney shareholder, would you be happy with the price they paid for Pixar?
It’s a complicated question because the acquisition was all-stock, so you have to ask yourself if Disney stock was over or undervalued at the time. Remember the part about Buffett and Tom Murphy talking about using stock as currency in The Snowball…
Anyway, what do you think? If it was good for Disney shareholders, then this strongly reinforces the case for DWA being undervalued. If you don’t think it was good for Disney shareholders, then this could be a comp that undermines your case rather than strengthens it.
Something we have to keep in mind is, right now no one is shopping for this company and it isn’t being shopped. Katzenberg sounds like he’s interested in “doing a Disney” on his own. Somewhere along, that’s got to require more capital. Can they keep making movies, keep buying back shares, keep the business humming (let alone growing) AND finance that kind of growth/change themselves? If not, will the other “partners” who are brought on to make the financial magic happen stand in line behind current shareholders, or will they get front-row tickets to the show, so to speak?
Another way to look at this or ask this question is… why was Pixar, which as you observe was a much “riskier” company with less substantial “assets” than DreamWorks, valued so much more highly than Dreamworks has been for most of its history? In early 2010 it came close to approaching the initial IPO valuation, according to my chart here looks like it capped out around $4B or so, but since then Mr. Market has been very nearly retarded in valuing this company despite comps like DISney and Pixar, despite all kinds of Wall St analysts crawling all over the company (have you noticed, by the way, that analyst coverage of this company in particular is more horrendously useless and inept than usual, by the way? The guys on the call are true mouthbreathers and ask the dumbest, most useless softball questions ever), despite the potential opportunity for it just getting better and better and better.
Kinda makes you wonder what’s going on.
I guess when Pixar was selling itself the “DVD Bubble” was going on and people thought Disney and others could sell an infinite number of DVDs forever.
Oh and another question I have for you… I think the mysterious and disappeared Andrew of Frog’s Kiss took a stab at this but I wonder how you see it– if the company stopped making films and new IP today and just licensed and distributed what’s on the books, what do you think the PV of terminal cash flows looks like for this company in run-off mode? They’d get to fire almost everyone who works there, which would help the margins considerably…
How much PV cash are we sitting on here? $3B? $5B? $500M?
Dreamworks is such a battleground! I do appreciate the tough comments from valuprax and others. After all, the stock is fairly heavily shorted and hated so you need to answer some of these charges to be long, as I am. I was going to post these comments on your other post but might as well move the discussion here, especially since I have some thoughts on the Pixar comparison.
It’s pretty obvious why DWA is down: The decline in DVD sales has made the economics of movies – even very successful ones – much less attractive. It used to be that studios can make a movie and make decent money in the theaters, but then make a killing on DVDs. Even mediocre titles made good money. Now, as many point out, even blockbusters are mediocre for profits. It’s a tough business right now. Katzenberg and Co. are well aware of this. What I like is that they are not just making small moves but big, aggressive ones, and they make sense to me.
Overall, DWA needs to create a broader platform to market their content. Pixar has been so successful not simply because of movie quality, but because with Disney they’ve been able to market their movies and characters continuously to the next set of kids growing up. Go to Disneyland and all the new stuff is related to Pixar movies – two new Toy Story rides, Cars Land. Go walk around at Halloween and you’ll see many Buzz Lightyears. But no Shreks. Walk through the toy isles at Target or Wal-Mart and you’ll see Pixar toys but very little Dreamworks. DWA has been able to create a franchise and pump more successful movies out but eventually sequels get stale and the franchise fades. Disney and Pixar are creating a lasting impression of their movies that make existing properties marketable to new set of kids every year. This is not just because Cars is awesome but the strength of the Disney platform to exploit their movies and reach kids in so many ways. You need both the content and the platform to maximize return. The Disney platform is something Dreamworks lacks.
Think about it this way: What if Shrek or Kung Fu Panda were Disney properties? The characters would be as ubiquitous as Lightning McQueen and Buzz Lightyear. Can you imagine what Disney could do with Po in China?
Regarding the Pixar purchase, I think there was almost no price too high for Disney. Pixar was their present and future. My kids and most kids I know have no relationship with Mickey and Daffy Duck. There’s Mickey Mouse Clubhouse and not much else. But they love McQueen, Buzz and Nemo, and they want to rewatch the movies and buy the toys and go to the Park to ride the rides. Disney needed Pixar to maintain their wonderful connection with this generation of children and the next. They needed the content to feed their platform. I don’t think anyone else would have paid anything close to that price for Pixar. But if Disney passed on Pixar at that time they just would have just paid more later.
The latest news in Dreamworks is exciting because it shows they know their disadvantages and want to create something like Disney has. They are starting from scratch but their content has the quality to succeed. Classic Media gives them a bunch of properties to exploit. Studios know the best thing to market is a known quantity. If you can’t market a sequel, bringing back a well known character can be the next best thing (I’m certain the new Lone Ranger will be much more successful than, say, the more obscure John Carter or completely unknown Sahara). And with this purchase, the cable network will happen eventually. They now have enough content in their library to start running today, so it is just a matter or working out the details. And U.S. studios have barely scratched the surface of what is possible in China. The number of theaters is a fraction of the US. The potential is huge and DWA has already proven it can perform well there.
On the distribution deal, I’m not surprised costs couldn’t go lower. Distribution is a low margin biz so there wasn’t much more to squeeze, and for this reason the distributors knew DWA really didn’t want to go in house. What will be interesting is if Fox can be more efficient with lower costs than Paramount. The distributor gets their costs covered, so every dollar saved becomes profit for DWA minus the 8 cents to Fox. It’s hard to evaluate because it is not an apples to apples comparison but nonetheless bears watching.
Getting a better cut on digital is no small issue. I strongly feel digital revenues will be higher in the future. Admittedly, it is still unclear exactly what the economics of this will be (how much will Apple, Amazon, etc. take?) but sales will rise and content will get paid. I have kids ages 6 and 3 and can tell you from my own experience and from my friends that purchasing good kids movies (that will be rewatched frequently) is still economical. Pixar movies top the list but Dreamworks is right up there. Almost everything else is an also-ran, with an exception here and there. Sales are coming down in DVDs but digital will move up strongly with tablets and internet connections for TV boxes becoming more widely adopted. Ultimately, I think good content will get paid as it always has, even if we are in transition now.
Why not buy Disney? It’s a behemoth, with large properties lacking the same value (*cough, ABC, cough*). I do think Disney is an amazing company to own at the right price but Dreamworks offers more opportunity with downside protection.
Naturally, the aggressive moves carry risk, but I think the current price offers a margin of safety. Management has proven themselves in building franchises and I like the odds of more in the future (Guardians could be next). Profits are at a nadir, and will likely rise with overseas expansion and increased digital distribution. And as many others have detailed, the existing library is worth at least the stock price to a buyer. The natural response to that is if this is all DWA can earn, how can the assets be worth more than the earning power? But I think movie profits are at a low point, and DWA is making the moves I would want to see to increase them. They are not resting on their laurels but are doing what it takes to make sure their excellent content gets paid well.
Ultimately, Whopper, I’m very much in agreement with your thougths on DWA. Sorry this comment is so long. I really need to start a blog. I wrote this for my own benefit anyway.
Hi Greg S,
How important do you think corporate governance and capital allocation issues are?
http://valueprax.wordpress.com/2012/08/25/a-record-of-some-misgivings-dwa-dis-frmo-whopperinvest-valueinvesting/
You make a very compelling case for why the business risk is lower than we think with DWA, and why the potential opportunity might even be better than assumed.
Good thoughts, and I encourage others to click over and read them. I’m aware of these issues but none of them rise to the level of disqualifying for me.
Regarding the share repurchases, I think you are looking in the rear view mirror and essentially arguing that the repurchases were bad because the stock went down. Just using a back of the envelope calculation, DWA earnings about $2.00 per share in 2010. It was less in the prior years but trending upward. You note the average price or repurchase was around the $30/share range, so the repurchases weren’t cheap but not unreasonable at the time. Of course, they lacked the foresight to see that the DVD bubble would burst and earnings would decline, but that’s why the stock is $17 in the first place.
I generally don’t have any problem with the compensation. I agree with the criticism of compensation consultants but they are pretty endemic to public companies and their use is not disqualifying for me. I’m fine with Katzenberg’s compensation, and his ownership interest aligns his interests with the shareholders. I also don’t have a problem with the dual share structure (at least in this case) because Katzenberg is exactly the guy I want running the company. The only potential red flag is Geffen’s compensation. He’s not involved in the day to day as Katzenberg so there is less justification for it. I can’t defend it, but it isn’t enough for me to pass on it.
Regarding the deal with Paul Allen, I admit the accounting details are over my head. I do understand that this is an issue only to the extent DWA generates taxable earnings, so this isn’t a liability that can cause any undue harm to the balance sheet. DWA anticipates receiving tax benefits from transactions entered into by affiliates owned by Allen, and Allen is capturing a big chunk of those tax benefits. How’d he get that deal? I don’t know. My guess is he had some leverage and was a real pain in the ass about.
You make an interesting point about corp governance being binary. I’m still mulling this over, but find myself in disagreement. Assessing corporate governance is qualitative, and ultimately involves some sort of value judgment about whether something is de minimus or significant enough to avoid investment. Even if you are using two categories instead of a sliding scale you are still drawing a line somewhere. For example, if any insiders are selling is that an automatic pass? Are severance packages bad practice per se? I think bright lines are hard to draw. We’re both going to be subject to biases as we analyze these issues and exercise our judgment.
Greg S,
1.) Not looking in the rear view. Is the company cheap at $30? I don’t think so. So if it’s not cheap at $30, buying back shares at this price destroys value. It’s that simple and it doesn’t involve hindsight bias.
2.) This company is growing. Short of their shares being insanely undervalued (let’s say they were selling for $1 or something), there is not much of a case for them buying back ANY shares.
3.) DVD “bubble” was bursting as they were buying back shares, this excuse doesn’t hold water. They of all people should be aware of trends in their business like this.
4.) The fact that most companies have poor corporate governance is not a defense or excuse, it’s just an observation of fact. Corporate governance is not relative– if all managers of the S&P500 were embezzling money, that wouldn’t make embezzling “good corp governance”. Further, bad corporate governance has the same long-run effect on the total value of the company and the position of the minority shareholder no matter what other companies are doing. Again, if all managers are embezzelers, it doesn’t mean when embezzlement happens at YOUR company it doesn’t destroy as much value.
5.) Related, corp governance IS binary– you either have good corp governance or you don’t. How you RESPOND to these facts is NOT binary… you can create any kind of sliding scale qualitative/quantitative analysis of how much value the poor corporate governance deserves. Bad corporate governance doesn’t become good corporate governance at the right price.
6.) Katzenberg’s equity interest IS NOT aligned with shareholders because he can increase his share of equity at the other shareholders expense. There is no way to justify this as “aligned with shareholders” when he can do something others can’t, at their expense. Again, you can come up with your own opinion of how bad it is or how much to discount it but you can’t argue that “Issuing stock options” is equivalent to “Not issuing stock options”, ceteris paribus, in terms of how it aligns with minority shareholder interests.
Just to reiterate the above:
Corporate governance, compensation issues, etc., are positive, descriptive, facts. They are or they aren’t. They are X, or they are Y, etc.
What you THINK of them, how you discount them, etc., that is normative. That’s up to judgment.
They’re separate issues. I hope I have made that clear. Because X doesn’t bother you, doesn’t mean X doesn’t exist (where, for example, X is a corporate governance issue).
“Not looking in the rear view. Is the company cheap at $30? I don’t think so. So if it’s not cheap at $30, buying back shares at this price destroys value. It’s that simple and it doesn’t involve hindsight bias.”
It’s unclear what standard you are using to judge management on capital allocation if not hindsight. Intrinsic value is neither immutable nor precisely knowable. I think most would agree that due to a robust, high margin DVD business, intrinsic value was higher a few years ago than today. Was it $30 when they were buying shares around that price? Certainly debatable. I think DWA’s earnings power justify that price. I also believe a return to its previous earnings power would justify that price again. But the simple fact that intrinsic value declined does not make the buyback decision a poor one. Indeed, I think the bad outcome was more attributable to poor management in failing to properly react to a changing business, which we all agree on, and which is why this opportunity exists.
More importantly, I think you are missing the bigger picture in regards to capital allocation. One of the most exciting things about management’s latest moves is that they reflect good capital allocation. You mention DWA is a growth company but it’s not as if they could have reinvested cash by putting out 5 or 6 movies per year. This would dilute their returns as they would weaken content quality and end up competing with themselves for audience dollars.
Rather, the growth in DWA will come from expanding existing markets for their movies and finding new ways to monetize their library, as Whopper detailed in his prior post. DWA newest projects primarily involve investing existing intellectual property. In the joint ventures (China, NJ Mall) DWA is mostly contributing IP and creativity with the partners putting up most of the capital. Now with the Classic Media purchase, DWA will seek a partner for a cable channel, and I expect DWA’s contribution will be similar. You questioned the use of debt for the Classic Media purchase. Fair enough. As Whopper argued, I think using leverage to buy properties that already have a strong track record for generating high margin, low capital-intensive licensing income is justified. DWA also elected not to self-distribute its movies. I looked at this awhile ago, and concluded that the economics were mediocre and there was little chance DWA would actually carry through with this. This, too, represented sound capital allocation (although had they gone the other way I would have sold).
DWA could seek to become a large media conglomerate and do all of these things on their own, but they have chosen to minimize their incremental costs for these projects. I agree wholeheartedly with these decisions as I believe they will lead to higher returns with minimal capital invested.
You can disagree with my assessment of these business issues, but just looking at the buybacks you are only telling half the story.
Greg,
Great analysis- no need to apologize for such an insightful commetn! you clearly articulated many of the thoughts I’ve had but haven’t been able to get out. keep up the great work/
My comment echos valueprax in that the DVD bubble is now over. It is much harder to make money in the film industry. Comparing Pixar valuation may lead to a value trap. Have you looked at Disney’s purchase of Marvell? Does that help or hurt your valuation argument?
In early 2012, LionsGate (LGF) purchased Summit Entertainment which is the owner of the Twilight movie rights. The acquisition was for 950MM in stock/cash/debt. Summit held 250MM in cash, the real price paid was 700MM. This deal effectively bought the Breaking Dawn Part 1 initial DVD release and Breaking Dawn Part 2 theater and initial DVD release. Production of Part 2 essentially completed (most costs already paid for I believe).
The purchase also bought existing library (Hurt Locker was one movie cited) as well as new titles currently in production.
(LGF financing presentation for Summit)
http://edgar.sec.gov/Archives/edgar/data/929351/000110465912005647/a12-3432_1ex99d1.htm
After reviewing the deal, I thought wow Twilight is worth less than 700MM for two initial DVD releases plus one big theatrical release. Of course, people may also rent/buy the first two releases adding to some extra revenue is there. I thought there is no way DWA titles can be worth as much… and sold DWA at a loss.
[...] to date (which should be obvious from my remarks in the comments section of each, 1 and 2) and if anything that makes me even more queasy with this one– he mimicked a lot of my own [...]
Valueprax a few notes:
1) Regarding the stock buybacks — I would agree with you that they were a bad idea. But unless you were an investor back when they bought back the stock, you have nothing to complain about. You are able to buy the company at the current price due to all the companies failures and successes of the past. Regarding them being poor capital allocators, I’d argue they’re poor allocators of capital as most managements are — if they were better — perhaps it’d cost us $22-23 a share to buy the stock.
2) Regarding poor corporate governance re Katzenberg — I’d argue that he’s underpaid. I’d argue that it probably saves the company money to pay for his jet than pay him his market rate. We are valuing the company fully understanding that these costs exists. I for one am not investing with the understanding that part of value enhancement going forward is that katzenberg and geffen will now pay out of pocket for their plane use. I’m buying the company — I believe the assets and future profitability of the company is underestimate — given the current cost structure. (Do you hear long time Apple shareholders complaining about Job’s stock options backdating “scandal” — he was by the way absurdly underpaid )
Hi Legend,
Thanks for the comments.
We’re taking a different approach to this problem.
Your approach is to accept that no company is perfect and try to handicap the imperfection and thereby arrive at a quantitative understanding of how it impacts the value of the business.
My approach is process-driven– I am stating that the very existence of these issues leads me to believe the company is uninvestable as a minority shareholder with no control over resolving these concerns. I certainly don’t think I am talented enough to quantify them with any degree of accuracy which could allow me to invest with a margin of safety despite my concerns. My only other option is to walk away and just choose not to swing at this pitch.
Good luck on attempting a home-run on these kinds of curve balls.
If your stock screener eliminated every company that ever bought back stock at significantly higher prices than where they are today — you’d have a very small pool of companies in which you can invest in. If you then added no corporate perks for top executives — that pool of companies would shrink even more. There are so many companies that have provided wonderful returns because they are good at their core competency (in this case making movies) and are available at a price that understates the value of that business. With your criteria you basically eliminate buying almost every large cap tech company — as they all probably bought back stock at a price higher than today at some pt. Would you be happier if DWA just paid their executives MORE and eliminated the perks?
Legend,
I am not sure why the shrinking universe of potential investments is supposed to be a bad thing. I see people cite this a lot– “If we followed such a strict criteria for investment, we’d almost never invest!”
So what? Isn’t that the point? Unless you’re running an index fund, where quality doesn’t matter, I would think selectivity would be a virtue.
The first thing we’re trying to do as investors is avoid making mistakes. One mistake you can make is to allocate capital to companies which have demonstrated they are good at destroying shareholder wealth through poor buyback strategies. Another mistake you could make is to allocate capital to companies where the management and insiders treat you like a rich uncle who bankrolls their flashy lifestyles at his expense.
Each of these things that a company doesn’t do well becomes a new hurdle the minority investor must overcome in his race for great investment returns over time. The significance of these hurdles to total returns is inversely related to the overall profitability/quality of the business, that is to say, the more outstanding the business franchise or the more durable the moat, the less significant some of this stuff is because the business’s economics will more than compensate over time. It’s also directly proportional to the extent of the issues themselves, that is to say, if the company makes a minor buyback flub or gooses the payment a little bit, it’s not as big a deal as it is if they have a now four-year record (at least) of poor buybacks and outstanding executive compensation.
Poor buybacks are NEVER defensible. NEVER. They can NEVER be rationalized. To argue buyback prices don’t matter is to say “It doesn’t matter what shares cost when I buy them, either.” The company is doing the exact same thing you are when it buys back shares– making a bet on the value of the company at that price. It is incredibly alarming to see multiple people on a value blog defending high-priced buybacks. What you SHOULD be doing is trying to make a case for valuing the company conservatively at $30/share. That’s the only way to defend those buybacks. I don’t see anyone attempting that right now, which is telling.
As for executive comp, again this whole discussion is taking place out of context. Katzenberg himself has said he is rich enough. You can get into a discussion of “what is someone worth” and in the end the only objective reference you can make is the market itself– do they get bid away from other firms and are they truly so integral to the firm that it would’ve been necessary to pay them more to keep them?
I operate on the assumption that many of the executives, while experienced, are essentially replaceable… pretty much any C-level experience person could do their job. As for Katzenberg specifically, he isn’t going to go somewhere if he’s not paid enough– he owns and controls the company! It is kind of disconcerting that a guy who doesn’t need it (according to his own opinion) and who isn’t someone you have to worry about leaving if his compensation isn’t “fair” is nonetheless taking 1% or more of equity for himself each year. Ummm, hello… 15 years from now that’s another 15% of the pie he owns. That comes off your slice, buybacks or not.
Stock options are a transparency issue and a red flag. It’s not about paying people more or less. It’s about whether minority shareholders can even quickly and simply figure out what it’s costing them to pay all of these people. A 66-page proxy report doesn’t do much to lend confidence to the idea that everything is well and fair. There really is no reason why a company can’t just pay cash and tell its executives that if they want to be owners they can buy a stake like everybody else.
The executive compensation consultants are weird, too. I have to believe they’re there for legal liability (plausible deniability if shareholders ever brought a suit against the company for extreme executive compensation practices). But wouldn’t just be easier to pay people things that weren’t potentially over the line? Your argument is Katzenberg is under-compensated (you make no mention of the other execs)… so they hired exec compensation consultants to inform them how to underpay everybody? That doesn’t make sense.
THERE IS NO OVERSIGHT OF THESE ISSUES FOR MINORITY SHAREHOLDERS. (I put it in caps so you won’t miss it). The board is owned and controlled by Katzenberg and his buddies. Minority shareholders have not nominated and elected anyone on the board. You can not make the argument that the board represents you and your interests in this regard. Like it or not, discount it or not, this is a red flag. Human behavior follows incentives, and so does economic performance of companies– where there is an incentive to take advantage of minority shareholders, there is a greater likelihood that it will happen, too.
I’m trying this whole time to communicate the idea of an “attitude” about minority shareholders that this company has demonstrated. Another great example is David Geffen’s jet– Geffen’s shares have been donated to a charitable trust, he is no longer a true equity owner and he is nominally available to the company as as “consultant” but really he’s out of the day to day management of the company’s affairs at this point. So why the hell is the company paying for his jet? Is DWA the United States govt, where former heads of state get free govt transport and a paid security detail in perpetuity out of respect for their service?
Do you or I get our personal perks during ownership and even after we sell?
This demonstrates an ATTITUDE toward minority shareholders which is “This is not a level playing field and you aren’t really our partners.” That isn’t good. It’s not defensible unless you think it’s a good thing to be treated like a 2nd class citizen in life.
I’m not trying to quantify it. But you’re welcome to if you think you’re that good. There’s a lot of moving parts– somehow everyone has not only visibility on the profitability and competitive dynamics of an as-yet-undecided new distribution paradigm focused on internet distribution, but on top of that everyone can tell what execs are worth and that the poor buybacks are not a quantitative problem for the overall value of the business, etc.
I’m not even going to respond to your large cap tech comment. It actually pisses me off that you’d even ask a question like that when the headline of this blog is “Deep value, micro cap investments”.
Too funny. As I read all of your comments on corp. governance, how the company is uninvestable, etc I kept asking myself why none of these were mentioned in your VIC writeup, valueprax?
http://valueprax.wordpress.com/2012/05/03/dreamworks-animation-trading-at-unreasonable-multiples-of-current-and-future-value/
TC,
You need to work on your reading comprehension.
I did not say the company is uninvestable. That is your interpretation of what I wrote.
Further, look at the dates on my posts. Notice I continued investigating these issues and developed these concerns recently, after I wrote my first thesis.
They weren’t mentioned for the simple reason that I hadn’t considered them.
Does that make sense? Nice try on the “Gotcha!” If you can’t respond to my concerns, just sabotage my character as a hypocrite, right?
I read well enough. I noticed the dates. To see you reaming people over these issues when you didn’t even consider them in the first place, well I’m happy to deflate you, even if just a little.
I didn’t respond to sabotage your character; I just thought other readers might like to see your thesis on the stock. And how far you’ve come in your investment process in just four short months.
TC,
Right, I see it now. So, you’re the noble knight of good character… you can’t teach me a lesson on investing I haven’t already learned myself and shared with others (despite their fitful kicking and screaming) so you’ve taken the burden upon yourself to improve my moral standing.
The fact that these two blog posts have turned into an echo chamber of praise and adulation for the thesis whose reverberations have completely deafened everyone’s ears to my tiny squeaks of caution is telling. The fact that people are so bored of self-congratulating themselves now that they find more interest in examining and repudiating my character is even more so.
Thanks for calling attention to my blog, which of course I was hiding from everybody by not only linking to it directly in some of my comments but also indirectly through my name on all my comments (which you can click to go straight to my blog)– I need all the free advertising and attention I can get seeing as how many stopped reading when they realized I have an inflated ego.
Man, what a loser you are. I came here to debate the investment issues and it’s turned into a psychoanalytical session.
Man, what I loser I am.
Except – I don’t own the stock (I agree with your points) and your “tiny squeaks of caution” are not so tiny. You are reaming people on these points. Again, I just thought other readers might like to know where you stand (stood?) on DWA.
DWA’s stock buybacks are in the past — they are already reflected in the company’s value today. They destroyed shareholder value for those who held the shares then. They do not impact me as I became a shareholder on Friday. Now the risk of course, is that they’ll constantly buyback shares when they are overpriced — in the future (this is what you’re saying right?). How does this impact me? Well, I don’t believe it does in this situation for 2 main reasons.
1) DWA has other better uses for its cash at this point in time.
2) I believe DWA stock is underpriced today, and not overpriced. My goal will be to sell the company when it reaches or approaches its intrinsic value. So even in an imaginary world that DWA didn’t have other uses for its cash and was buying back stock — I’d be happy that it’s buying back stock. And at the point where I’d be unhappy they are buying their stock — i shouldn’t be a shareholder anymore right?