Pixar Bull's Rebuttal
by Rick Munarriz ([email protected])

Like Buzz and Woody, two adversaries who wound up being the best of buds, I guess I should welcome sharpshooting Bill, decked out in Woody duds I imagine, into the bull camp with open wings. He makes the bullish case sound so much more alluring than I ever could. First he points out how the stock raced past $40 as Toy Story hit the theaters back in 1995. That was when Disney was just paying out a slim cut in the pre-teens for Pixar's limited royalties. With the payout now better than four times higher, I guess Woody thinks investors might want to bid the stock up to $160 now. And that was just a three picture deal, now expanded to a five picture contract. So, let's see, that would be $266, before we begin to consider the added prestige Pixar received along with the Disney concessions last year. Whoa there sheriff, this Duel ain't big enough for the both of us bulls.

Still, this thinly guised bear hops on his bull and heads off into the sunset. He points out how it will be difficult for A Bug's Life merchandise to top Toy Story. Hello? Was I the only one who was a parent in 1995? You couldn't find the Talking Buzz Lightyear dolls over the holidays because Disney had gone with tiny Thinkway Toys, unaware of how great demand would be. The offerings were so slim that Slinky Dog and the three-eyed claw-awed alien didn't hit the shelves until 1996.

Then again, that was the 1995 hit's flaw -- a lot of the characters like Mr. Potato Head and Etch-A-Sketch belonged to Hasbro <% if gsSubBrand = "aolsnapshot" then Response.Write("(Amex: HAS)") else Response.Write("(Amex: HAS)") end if %> and Ohio Art <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: OAR)") else Response.Write("(AMEX: OAR)") end if %>. This time Disney, and Mattel, are ready -- and Pixar and Disney own all of the animated talent. Last week I was at Toys R Us <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRU)") else Response.Write("(NYSE: TRU)") end if %> and it was an insect infestation! There are more Disney Stores open today than there were three years ago. There are more visitors to Disney's theme parks than there were three years ago. There are more McDonald's today than there were Burger Kings three years ago to serve as a promotion backdrop.

Bill, sorry, I mean Woody, also points toward the international market. Thanks. Who can argue with how universal ants and grasshoppers are versus, say, a Mr. Mike and a pull-string cowboy. Voice characters? I'm sorry, nobody went to go see The Lion King to hear James Earl Jones or Antz to listen to Sly Stallone. Still, I think casting Dennis Leary as a male ladybug is genius this time. Pixar knows what it's doing. Besides, if Bill wants to hear more Tom Hanks and Tim Allen all he has to do is wait until next year for Toy Story 2 -- this time with a kinder cut of the residuals and with ample time to work that merchandising charm.

Bill is worried about Katzenberg's vengeance, and rightfully so, but he is no kamikaze. Antz was released almost two months before A Bug's Life debut. The only other time Dreamworks tried this, with Deep Impact preceding the similar meteor crashing to Earth storyline of Disney's Armageddon, the Disney film proved to be the most successful box office hit for Disney since, well, Toy Story.

Before I race my buddy Woody to the matinee showing today, I should also point out that there was one aspect where he wasn't exactly shooting straight. Net. He gave you trailing earnings and even next year's earnings to spook you with sky-high P/E's of 200 trailing and 75 year-ahead. Yet he left out the reason why the bottom line is projected to be so low next year. Because Disney recoups its distribution costs first, Pixar will not begin booking A Bug's Life income until the second half of 1999. At that point it will be substantial. The same Merrill Lynch analyst calling for $0.66 a share next year is looking at $1.30 in fiscal 2000 and "conceivably" two bucks a share the year after. That is 75% annualized earnings growth over the next couple of years, and that is why, even at today's price, you've got a friend in Pixar.

Next: The Bear Responds