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Like 'Toy Story,' Pixar Stock Is a Hit Its First Day on the Street : IPOs: $47 opening is double its offering price. But analysts warn that the frenzy for the computer animation firm may fizzle.

November 30, 1995|AMY HARMON | TIMES STAFF WRITER

In its first day of trading, the stock of Pixar Animation Studios resembled the ambitious flight of Buzz Lightyear, the computer-generated star Pixar produced for the new hit film "Toy Story."

Shares of the animation firm opened at $47, more than double their offering price of $22, and at the closing price of $39 per share, the company--controlled by Apple Computer Inc. founder Steven P. Jobs--had a market value of about $1.5 billion.

"Obviously we're very happy," Jobs said Wednesday. "What we've been able to do is to marry the technology culture of Silicon Valley with the creative culture of Hollywood, which everyone talks about but no one else has come through on."

Jobs, who is Pixar's president, owns 80% of its 37.4 million outstanding shares. The stock's performance Wednesday made him a billionaire.

But some analysts warned that just as Buzz discovers he's only a toy, not a real space ranger, Pixar stockholders may soon realize the company is just another competitor in the entertainment technology arena, not a source of free cash.

"There's a mania going on at this point for multimedia and the Internet, and these things are selling at values that people are probably going to be really sorry that they bought at in the coming year," said Michael Murphy, publisher of California Technology Stock Letter.

Analysts said a significant portion of Wall Street's Pixar frenzy is attributable to the timing of the public offering, which comes as "Toy Story" is No. 1 at the box office.

"The timing was extremely--creative," said Jill Krutick, an entertainment analyst at Smith Barney. "Had the IPO occurred at a different point in time, the market reaction might not have been so vehement."

A tale of jealously and friendship between toys that come to life when humans aren't around, "Toy Story" is the first animated feature film created entirely on computers. Walt Disney Co. is marketing and distributing the film, which was produced using Pixar's proprietary animation system at its studio in Richmond, Calif.

But according to its prospectus, Pixar does not stand to make much money from "Toy Story," no matter how successful it is. Company officials declined to comment on the financial arrangement, but analysts said that if the film takes in $150 million, Pixar would get about $30 million in revenue.

And the firm, which earned $3.1 million on revenue of $10.6 million for the nine months ended Sept. 30, is committed to producing two more films for Disney, under similar terms.

That leads some industry watchers to compare the market's current valuation of Pixar to what is widely believed to be the highly inflated valuation of Netscape Communications Corp., an Internet firm that went public with a splash in August.

In recent years, other trendy entertainment technology firms that have gone public with much fanfare, such as 3DO Co. and Iwerks, analysts note, have ultimately proved to be disappointing.

But analysts say that unlike hardware companies, Pixar, which essentially sells a highly valued service that currently has few competitors, already has something to show for itself. And it has a decent chance of becoming the first independent digital studio.

"For $7, you can go to the theater and see what they have to offer," said Harold Vogel, an entertainment analyst at Cowen & Co., one of Pixar's underwriters.

Said Jobs: "It's not for me to decide what the value is--that's why we have a market. But we are only the second studio in 60 years to produce a blockbuster animated feature film--and we're doing it in a new medium of 3-D computer graphics."

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