Pixar Studio

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Outline

• Company Background
• Pixars History
• Board of Directors
• Financial Ratios
• Holding Period Return

• Free Cash Flow and Cost of Equity
• Free Cash Flow
• Discounted Cash Flow Model

• Market Efficiency
• Specific News
• Non-specific News

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Outline

• Risk Analysis
• Stock Beta
• Unlevered Beta
• Cost of Equity

• Cost of Capital and Optimum Capital
• Structure
• WACC for 2002-2005
• Capital Structure

• Conclusion

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Background Analysis

• Pixar Animation Studios is a leading animation
  studio that focuses on creating full length
  animated feature films.

• Through their creative, technical and production
  capabilities, Pixar has developed five films
  with revenues of 3.2 billion dollars, not
  including the box office hit of 2004 The
  Incredibles.

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Background Analysis
They also have three core proprietary software
technologies.

Marionette which is used internally at Pixar
for articulating, animating, and lighting
computer graphics.
Ringmaster is another software package that
manages a computer animation project.
Renderman is the main software package that
Pixar markets to the public. For sixteen years,
Pixar has sold Renderman to movie studios to
help them in their efforts of special effects
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Pixars History

• 1986 The computer graphics division of Lucasfilm,
  Ltd. is purchased by Steve Jobs for 10 million
  and established as an independent company
  christened Pixar. Ed Catmull, who had been
  with Lucasfilm since 1979 as the vice president
  of that division, is named co-founder and chief
  technical officer of Pixar. At this time, about
  44 people are employed at Pixar.

• 1991 Pixar and Walt Disney Studios team up to
  develop, produce and distribute up to three
  feature-length animated films. Pixar makes 15
  commercials.

• 1995 Pixar goes public, with initial public
  offering of 6,900,000 shares at 22 per share.
  The IPO raises 140 million, beating out Netscape
  Communications as the biggest IPO of the year.

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Pixars History

• 1995 Toy Story hits U.S. theatres Thanksgiving
  weekend and goes down in history as the first
  fully computer animated feature film. It also
  became the highest grossing film of 1995.

• 1998 Bugs Life is released and breaks all
  previous U.S. Thanksgiving weekend box office
  records. The movie also becomes the highest
  grossing animated release of 1998

• 1999 Toy Story 2 is released, breaks opening
  weekend box office records in the U.S., UK and
  Japan, and becomes the highest grossing animated
  release of 1999

• 2001 Monsters Inc becomes the highest grossing
  animated film worldwide released in 2001 and the
  3rd highest grossing animated film ever.

• 2003 Finding Nemos 70.2 million opening weekend
  breaks box office records domestically for an
  animated feature and become the highest grossing
  animated film worldwide

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Board of Directors

• Steve Jobs
• Chairman and Chief Executive Officer
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• Co-founder of Pixar in 1986
• Under his leadership, Pixar has created six of
  the most successful animated films of all time
• Toy Story (1995)
• A Bugs Life (1998)
• Toy Story 2 (1999)
• Monsters, Inc. (2001)
• Finding Nemo (2003)
• The Incredibles (2004)

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Board of Directors

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Board of Directors

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2004 Revenue Stream

• Finding Nemo 150.8 Million
• The Incredibles 40.4 Million
• Library Titles 67.4 Million
• Software 12.6 Million
• Animation Services 2.3 Million

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Market Capitalization
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Pixar Stock Ownership
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PIXR Stock

• Date February 13, 2005

Price per Share 89.69 Daily Trading Volume
176,323 Market Cap 5.18 Billion
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Holding Period Return
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Price Target Summary
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Financial Ratios
Growth Rates is Poor in comparison with the
industry Growth Rates is Fair in comparison
with the SP 500
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Financial Ratios
Price Ratios is Fair compared to the
industry Price Ratio is Fair compared to the SP
500
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Financial Ratios
Profit Margins is Good compared to the
industry Profit Margins is Good compared to the
SP 500
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Financial Ratios
Financial Condition is Good compared to the
industry Financial Condition is Good compared to
the SP 500
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Financial Ratios
Investment Returns is Good compared to the
industry Investment Returns is Good compared to
the SP 500
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Financial Ratios
Management Efficiency is Fair compared to the
industry Management Efficiency is Fair compared
to the SP 500
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Market Efficiency Analysis
Non company specific news

• Iraq War 3/19/03
• Does not reflect any form of market efficiency.

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Market Efficiency Analysis
Company specific news

• Release date of Cars delayed - 12/07/04

Weak Form Market Efficiency
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Free Cash Flow Cost of Equity
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Discounted Cash Flow
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CAPM Model
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Risk Analysis
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2004 Capital Structure
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WACC
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M M Chart
No Model
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Hold, Sell or Buy?
Susan Sell Mandy Hold Sandy Sell Mark Sell Tu
Quynh Hold
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Experts Opinion
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Financial Ratios Conclusion

• Strengths
• High Profit Margins Before Tax
• High Net Profit Margins
• High 5 year Net Profit Margin
• Low Debt/Equity Ratio
• High Quick Ratio
• High Return on Assets
• High Return on Capital Invested

• Weaknesses
• Negative Growth rate sales
• Low Growth rate Earnings per share
• Negative Holding Period Return
• 53 Insider Ownership
• Overvalued Stock Price

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Conclusion
Strengths

• Worldwide recognition
• Highly popular products
• Ending contract with Disney
• Increased share of profits
• Greater creative control of product
• Increased expansion potential

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Conclusion
Weaknesses

• Increasing number of competitors
• High cost of production each product is high
  risk
• Ending contract with Disney
• Loss of distribution and marketing power
• Loss of project funding and technological
  support
• Disney becomes a powerful competitor

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Thank you!