A New Dawn For Movies
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Lions Gate Entertainment Corp (NYSE: LGF) reported Q2 earnings after hours on November 8 and beat expectations with a jump in revenue of 97% year over year. That they had actual profits of $75.5 million instead of the year-ago loss of $25.3 million was cheering enough to send it up 14.25% the next day. The actual EPS of $0.53 a share was much more than analysts' expectations of one thin dime.
This rare success after years of struggling was based on the DVD sales of the first of the Hunger Games trilogy as well as their horror film "The Possession" doing boffo at the box office. (I've always wanted to use the word boffo, it so rarely comes up in conversation.)
What Next For Lionsgate?
But what to expect now as the hype machine is in full throttle for the premiere of "Twilight: Breaking Dawn Part 2", the last of the Twilight movies? Fans lined up for a special LA premiere on November 12 and are already panting for the US release on November 16. This early premiere strategy also worked to Lionsgate's advantage with the Hunger Games.
This final installment in the vampire saga of Edward, Jacob, and Bella as they hit their adulthood is very special to Twilight fans. It should also be special to Lionsgate shareholders as the first four Twilight movies total worldwide gross was over $2 billion dollars and the averaged worldwide gross for a Twilight movie is over $500 million. Breaking Dawn 2 has to at least come in over budget of $136.2 million.
Lionsgate's merger with Summit Entertainment was quite savvy bringing them the rights to Twilight. Lionsgate had over a year's hiatus until the sequel to The Hunger Games in November 2013. Twilight was a perfect choice to fill in the pipeline.
Once Breaking Dawn hysteria dies down and boffo box office numbers are digested Lionsgate will likely fill in with lower budget horror films, including the Saw franchise, as they already have with great success. Lionsgate has also purchased rights to other popular young adult novels to develop into films. In general, the company's Motion Pictures division is performing much better than its Television Production division with profits down 29%.
So Is It Still A Buy?
Investor Carl Icahn lost patience with the name just months before the Hunger Games PR machine ramped up and he left millions on the table as the stock doubled. Now it's at almost the same range as it was when Mad Men's Jon Hamm rang the opening bell at the NYSE in mid-March after selling off from its 52 week and all time high of $17.02 on November 1.
Yes, the fundamentals are improving -- they're actually making money! CEO Jon Feltheimer and newly appointed Co-CEO Brian Goldsmith had their hands full taking a small production company founded in 1986 (still with only 607 employees) to this point.
However, this must be considered a speculative stock. Show biz can be so fickle. You're up one day, you're down the next. There must be a song to that effect. Several movie companies have reported and results are all over the place. No two ways about it this is a volatile stock and the short interest has risen to 19.10% since September.
It certainly isn't a Walt Disney Company (NYSE: DIS) It's much more like competitor DreamWorks Animation (NASDAQ: DWA) with a 24.55 P/E and similar market caps around 1.60 billion. Disney, of course, is an entertainment monolith with ABC, ESPN, all the Disney channels but little Lionsgate does have some quality TV programs: Mad Men, Weeds, Boss, Nurse Jackie, Blue Mountain State, and fourteen others as well as a DVD library of 13,000 titles.
Better Odds Takeaway
The numbers for "Breaking Dawn 2" should be super but Lionsgate has a stronger pipeline than ever before with two more Hunger Gamers sequels ahead and so much more. While Lionsgate is small and speculative, the odds just got better for the name. And as the tagline in The Hunger Games goes "May the odds be ever in your favor."
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney and DreamWorks Animation. Motley Fool newsletter services recommend Walt Disney and DreamWorks Animation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.