April 06, 2004

Pixar amassing cash for an acquisition?

With Pixar freeing itself from the Disney corral, there's been a lot of speculation about who their next distribution and marketing partner will be.

But the real question may not be "who" but rather "how long." An analysis of Pixar noted that the company has a goal of amassing over one billion in cash by 2006:

What is 54%-owner Steve Jobs really after, besides the $52 per year Pixar pays him? Of course, having all five of your films among the 11 highest-grossing animated films of all time isn't shabby. But in the last conference call, Jobs -- who, incidentally, has never sold a share of Pixar -- indicated that the company hoped to have up to $1 billion cash stockpiled by 2006. Why? To ride out a string of flops? At $100 million to $150 million per film, that's a lot of flops. Dividends? Maybe, but why not start a little one now?

I'm guessing that at a minimum, Jobs plans to put out more than the current one movie per year, but given that his conference call comments hint at a preference for quality over quantity, it's questionable how far down that line he and Pixar's creative talent are willing to go. And it's not all up to him, either.

Pixar's market, at least as it stands now, might not be willing to absorb more than one or two films per year. In other words, he probably has something up his sleeve. Maybe it's an acquisition; maybe it's a significant expansion of Pixar's offering; maybe it's just a few extra films and a buyback or dividend. Whatever is coming, I'd say this lottery ticket has some decent odds.

With Apple's successful foray into music, it would make sense that the next move would be an acquisition.

Who Pixar partners with will speak a lot about that.

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Fool.com: Funding Nemo [Commentary] April 6, 2004