Why I Bought Pixar (Nasdaq: PIXR) My 6-year-old son has had a thing for Pixar ever since he was born in 1998. He's been through a whole lot, medically speaking -- but that's another story for another time, and Pixar's computer rendered creations have always been that calming force in his life. Even when things got rough you could rely on him being able to rattle off just about every line from the Toy Story flicks by memory. So when it came time to stock up his Education IRA (now known as Coverdell) with what at the time was a pretty paltry $500 annual max, it all went to Pixar in 2000. I made the one unfortunate mistake of selling half after it doubled a couple of years back (as the shares have gone on to triple from his first nibble). So while my beneficiary ownership of Pixar rests solely on my young son's college fund I'm also a huge fan of the company and its quality work. It has outDisneyed Disney (NYSE: DIS) and that's saying something and Pixar is now the top brand in animation. Theatrical animation is now more important than ever as DVD sales, video games, merchandising and even stage shows have come to embrace Pixar's creations. Pixar's net profit margins -- a Microsoftesque 35% plus during meaty quarters -- and its perfect box office record have made Pixar a great investment but it has had to split the profits of its labor with Disney -- 50-50, with Disney also collecting film distribution fees. That all changes after Pixar delivers Cars next summer. At the point Pixar's deal with Disney will be complete and while Pixar will have to finance its films, its cash-rich balance sheet won't have a problem with that and Pixar will then be collecting 100% of the profits and be able to dictate the appropriate utilization of its amazing characters. Yes, it would be great to see Pixar and Disney stay together but it's a relationship that Pixar had simply outgrown. Pixar is not happy that Disney has the rights to make sequels off its earlier creations (Pixar has the right to do the handiwork under the old terms or opt out and take a smaller passive royalty) but that's the price Pixar will have to pay for being under Disney's tutelage when that was the kind of apprenticeship worth having. It's a bright future for Pixar from here, or, as Buzz Lightyear would say, to infinity and beyond. Why I would sell Pixar? All we're talking about is 20 shares in my son's Coverdell educational savings account but I know what wouldn't make me part ways with the investment. A dud movie. I mean, it's going to happen eventually. Pixar's average film has taken in more than $200 million at the box office (with that amount a few times over in home video and DVD release, video games sales and more). Yet Pixar's fickle release schedule -- one movie every 18 months vs. DreamWorks Animation (NYSE: DWA) going with two every year -- will make each release critical. Because there is value in a quality library (think Disney) the stock tanking on poor release may offer a buying opportunity yet if it strings way too may turkeys together it would be a troubling sign. Pixar will have lost touch with what the audience wants -- a deadly malady that even befell Disney. A glut of quality animation (and DreamWorks has done pretty well so far and others like Fox too) may also hurt Pixar in its ability to stand out the way it has in the past. Go Back UNDER

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