DreamWorks shares fall on weak DVD sales

Wed Aug 1, 2012 9:43am EDT

(Reuters) - DreamWorks Animation SKG Inc's shares fell 8 percent on Wednesday, after its quarterly results missed analysts' estimates, prompting two brokerages to cut their price targets on the stock.

DreamWorks, the studio behind the "Shrek" franchise, reported a 25 percent drop in revenue to $162.8 million, below analysts' expectations of $186.2 million.

"Sales from DVD are declining at a faster than expected pace," Janney Capital Markets said in research report.

DVD sales are falling due to cheap rentals and increasing saturation in the animation market, the brokerage said, adding that this would worsen as the company's deal with online video rental company Netflix Inc kicks in next year.

DreamWorks signed a deal last year to allow streaming of its movies on Netflix.

"Netflix streaming has become a true replacement for DVD ownership and DreamWorks could be facing a similar headwind that is currently plaguing Nickelodeon and other kid networks," Janney Capital said.

Janney cut its fair value on the company's stock to $14.5 from $16 but maintained its "sell" rating.

Susquehanna Financial Group cut its price target on the stock by $1 to $17.

Shares of DreamWorks were down at $17.66 in early trading on the Nasdaq.

(Reporting by Shubham Singhal in Bangalore; Editing by Maju Samuel)