Paxar Rocks Wall St.

Pixar, the high-tech animation studio that co-created “Toy Story,” became the latest Wall Street craze Nov. 29 when its initial public offering was mobbed by investors.

Not only did Pixar succeed in raising almost twice as much money as first planned, selling $152 million worth of new stock in the offering, but once the shares began trading they almost doubled again in value.

Eighty-percent-owned by Apple Computer co-founder Steven Jobs, Pixar sold 6.9 million shares at $22 each, compared with the originally planned offering price of $12-$14. When trading opened, the stock leaped to a high of $49.25 before settling back closer to $40. It finished the week at $40.25.

“It’s an incredible story. People are responding well to ‘Toy Story’ and believe in the outlook for the company over the long run,” said Harold Vogel, an analyst with Cowen & Co., one of underwriters of the initial public offering.

Not only was the IPO timed for just after the film’s opening, but the nature of the company also appeals to investors who have participated in the hightech sector’s boom over the past year, traders say.

Pixar describes itself as a “digital animation studio with the technical, creative and production capabilities to create a new generation of animated feature films, CD-ROM titles and other related products.” But it says in its Securities & Exchange Commission filing that it intended to generate most of its business by developing animated features.

Like many of the highest-flying high-tech stocks to be romanced recently by Wall Street, Pixar has virtually no earnings track record to justify its market value, now at $1 billion-plus. Indeed, despite the $38 million five-day opening gross of “Toy Story,” Pixar won’t necessarily make much money from it, as it only receives a production fee from Disney, the pic’s distributor.

But the amount of the fee will increase if the B.O. and video revenues pass certain thresholds. Pixar admits in its prospectus that even if its animated pictures were “extraordinary box office successes, Pixar’s compensation would be very small compared to that of Disney, and it is possible that Pixar would not achieve any significant revenue at all.”

The company has a three-picture deal with Disney that commits Pixar to work for Disney exclusively in movies, TV, homevideo and theme parks. Pixar can work for outsiders on television commercials and movie special effects, however. The exclusivity could last past 2000, the Pixar prospectus says.

In exchange, Disney will finance development and production of the picture up to a budgeted maximum, after which Pixar is responsible. The prospectus says Pixar is responsible for $2 million of “Toy Story’s” costs at Sept. 30, which will be deducted when Pixar gets its fee.

The scale of the fee has not been disclosed, but analysts estimate it is about 6%-8% on all revenues below $100 million, rising to as much as 18% of revenues over $200 million. Pixar does not define “revenues” in its filing, but assuming it means B.O. rentals, which average one-half of grosses, the company might only get $1 million$2 million after covering its budget overage if “Toy Story” grossed $100 million at the domestic box office. But judging by the first weekend, the picture is likely to do much better than that.

On Wall Street, the smart money already is betting on the day investors wake up to the shortcomings of the company’s deal. One hedge fund known for selling stocks short in a speculative maneuver has taken just such a position on Pixar – gambling the stock will fall hard.

Judging by the first few days of trading, that hedge fund could be waiting a long time.

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