DreamWorks Animation University of California, Berkeley

Vanessa Qing Guo, Nichanan Kesonpat, Advaita Patel and Amy Hu

Introduction & Investment Thesis

Company: Dreamworks Animations SKG Inc.Ticker: DWA (NASDAQ)Current Price (Mar 17 Close): $26.0552-week range: $17.02 - 29.75

Recommendation: BUYTarget Price: $ 33

1. Subscription Video On Demand with Netflix- original series, successful partnership, extension

2. Big releases of Kung Fu Panda 3 and Trolls

3. Valuation

DWA Performance YTD

Source: Bloomberg

Industry Overview: Media- Television & Film

Macroeconomic Highlights

Industry Highlights

Main driver is contentNew technology, migration to OTTSize (M&A common)- Time Warner and Charter, AMC and Carmike

Handheld devices (smartphones, tablets) Enhanced internet connectivity gives consumers more access to high quality media content anywhere, anytime. amending existing business models to address technology that allows user to bypass advertisements while viewing the content.

Online video, social media and mobile media are expanding rapidly

Media and entertainment companies need to ensure they participate actively in the growth platforms of the future. Making this happen will require mastering a new set of skills and strategies involving portfolio and business development, software, and technology. Creating a successful culture of innovation will also be a key element of the path forward. For many media companies, this will require greater openness in innovation processes, and the need to embrace more systematic “test and learn” approaches — trying many things, but scaling up only those that work.

Positions in emerging markets have become key to long-term growth

Global media and entertainment industry growth will be fed primarily from the emerging markets of Latin America, Asia, Russia and the Middle East. Across these regions, the multimedia landscape is developing rapidly; and, in many cases, traditional barriers associated with distribution and regulation are no longer that significant. Companies looking for growth need to be evaluating partnerships and acquisitions that result in a greater exposure to these geographies.

Company Overview

Overview

- Dreamworks goes back to 1994- Dreamworks Animations SKG (Spielberg,

Katzenberg, and Geffen) founded in 2004, as a publicly traded spin-off

- release two movies every year - development, production, and exploitation of

animated films - two segments: Film and TV Specials/Series

and Classic Media - their associated characters in the worldwide

theatrical, home entertainment, television, merchandising, and licensing and other markets

- top grossing films: Shrek 2, Shrek the Third, Shrek, Shrek Forever After, and How to Train Your Dragon total $1,487,929,220

- second largest grossing family film in the domestic home entertainment market

Key people

● Jeffrey Katzenberg (Founder/CEO)● Mellody Hobson (Chairman)● Lewis Coleman (Vice chairman)● Ann Daly (President)● Fazal Merchant (CFO)● Mark Zoradi (COO)

Company Overview: Financials

posting earnings of 55 cents a share and adjusted earnings of $56.5 million that more than doubled projections for the fourth quarter of 2015. The company’s shares jumped up by more than $2 per share on the news in after-hours trading to more than $23, an increase of more than 11%.Turning now to our Television segment where revenue more than tripled year-over-year to $51 million and segment gross profit increased to $15 million with margin expanding to 30%.

revenues in the final quarter hitting $319 million, the best in eight years and well ahead of the projected $274 million, and net income hitting more than $48 million, almost four times analysts’ consensus. DreamWorks also exceeded consensus projections for all of 2015 in both revenue, topping out at $916 million, and operating income, which came in at $78.8 million, compared to analysts’ projection of just $47.4 million. While the stock-watchers had set net income at a negative $15 million, DreamWorks pushed into the black at $7.6 million

fifth straight quarter in which the company exceeded analysts’ expectations

“Panda 3” has performed solidly, hauling in nearly $300 million worldwide, with the film open in the U.S., China and a handful of other countries, but yet to open in 74 markets throughout the world. The opening was timed to the Chinese New Year, and “Panda” hauled in $142 million, nearly half of its total, in the Middle Kingdom. The two previous two installments in the “Panda” franchise each took in more than $600 million globally.

Deal with Netflix Original multi-year deal announced in 2013 to produce 300 hours of original programming for Netflix

Starting in 2016, Netflix will launch several new series from DWA, including a reimagining of Voltron, and the new series, Trollhunters, from

master storyteller Guillermo del Toro, who will unleash a new, fantastical world wrapped around two best friends who make a startling discovery

beneath their hometown.

Over the term of the new agreement, a number of new original series will be developed and produced by DreamWorks Animation for Netflix,

based not only on recent and upcoming feature films from the studio, but also on other classic IP.

Important distribution platform at a time where people are watching things online

Last month, the studio said it was getting into the business of producing live-action television shows based

on its original characters and those from the

Classic Media library, which it acquired in 2012 for $155 million, securing the rights to Lassie, Waldo, Casper

the Friendly Ghost and

hundreds of other characters.

With the new Netflix deal, DreamWorks has commitments to produce more than 1,600 episodes of television for linear and video-on-demand

platforms.

focusing on feature films: HOME, TROLLSKung Fu Panda 3 was released in the US and China on

January 29th- opening weekend: $41 million in 3,000+ theaters - worldwide: $327,348,221so far - released March 18th elsewhere aka more growth - outdid movies that featured Leo, Disney’s “The Finest

Hours”, Natalie Portman, and Nicholas Sparks’ “The Choice”

Trolls is to be released November 4th this year - global phenomenon now gets its own movie - merchandise rights, bought patent - Anna Kendrick, Justin Timberlake, Russell Brand,

James Corden, - global licenses with Hasbro, Random House publishers,

Hallmark

Valuation

Competitors: Disney animation & Pixar, Blue Sky Studios (private)

Valuation EPS Growth Method Low Medium High

EPS Growth 20% 40% 60%

New EPS 0.66 0.77 0.88

P/E 40 43 46

Share Price 26.4 33.11 40.48

New/Old Price 101% 127% 155%

Current EPS 0.55Current Price 26.07

Current P/E 47.4

14-15 EPS Growth 82%EV/EBIDTA 22.23

2015 2014 2013 2012Diluted EPS -0.64 -3.65 0.65 -0.43

Year-end price 25.77 22.33 35.5 16.57

P/E N/A N/A 54.6 N/A

DCF yo

Risks and Mitigating Factors - If netflix fails, then we fail also /*Netflix’s stocks always

rise in the summer, and with og series coming out, Netflix should not drop severely in the next year

- revenue is dependent on consumer reactions to films /*net gain because some flops and some really big successes

- if 2016 movies fail /* rip dwa abort sell #recover maybe? 2015 was a good year despite being a transitional year? still have to see international reaction to kung fu panda 3//outdid itself during a quiet period for movies

- rides with the economy /* economy is doing well ish

Question and Answer

Appendix

http://www.licensemag.com/license-global/dreamworks-adds-10-trolls-partners

http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-netflix-dreamworks-animation-expand-global-relationship-20160105-story.html NFLX DWA expand deal

Income Statement

Balance Sheet

Cash Flow