Entertainment studio Lions Gate Entertainment (LGF-A 0.19%) (LGF-B 0.30%) reported third-quarter results last Friday. Earnings came in far below the year-ago period's result due to heavy investments in video streaming launches all around the world, but the company still crushed Wall Street's even lower estimates.
Lions Gate's third-quarter results by the numbers
|
Metric |
Q3 2020 |
Q3 2019 |
Change |
Analyst Consensus |
|---|---|---|---|---|
|
Revenue |
$999 million |
$933 million |
7% |
$944 million |
|
GAAP net income |
$32 million |
$78 million |
(59%) |
N/A |
|
Adjusted earnings per share (diluted) |
$0.14 |
$0.35 |
(60%) |
($0.13) |
Data source: Lions Gate. GAAP = generally accepted accounting principles.
Lions Gate's motion picture segment saw revenues rise 31% year over year to $474 million, lifted by box office blockbusters Midway and Knives Out. The company also celebrated a third title, reality-based drama Bombshell, which didn't do great at the turnstiles but won an Academy Award for best makeup and hairstyling. Award-winning movies tend to attract strong talent to movie studios, even if they don't always turn a profit.
The TV production division posted 13% lower sales at $189 million. Year-over-year comparisons were difficult due to the year-ago quarter's contributions from delivering the final season of Netflix (NFLX 1.02%) hit Orange Is the New Black. CEO Jon Feltheimer still called this "a very productive quarter" for television production thanks to a busy pipeline of series launches and orders for new shows. All told, Lions Gate has 17 scripted TV series in production and eight more looking for long-term distribution deals at the pilot-episode stage.
Finally, Lions Gate recorded $382 million of revenue in the media networks group, a 4% year-over-year increase. The Starz premium cable network lost 600,000 subscribers during the quarter, landing at 24.1 million accounts. The company added 1 million names to its global roll of subscribers to video-streaming services, stopping at 8.6 million accounts.
Image source: Getty Images.
What's next for Lions Gate?
Management didn't provide any guidance for the seasonally soft fourth quarter, but it did offer some targets for the 2021 fiscal year.
The television production group will benefit from the syndication of Mad Men and Weeds while working on the rich content pipeline mentioned above. Motion picture results will have a hard time comparing to the fantastic results of John Wick 3, which was released in the summer of 2019, but should make up for that shortfall with four big-budget releases in the second half. And the expansion of Lions Gate's streaming media properties will continue unabated, weighing on the company's bottom-line profits while building a modern revenue-generating video platform on a global scale.
Lions Gate's shares rose roughly 5% when this report hit the news wires on Friday and have stayed at that level ever since. That's still 40% below the 52-week highs for both share classes and the company is trading at bargain-bin valuation ratios such as 0.6 times trailing sales and 0.8 times Lions Gate's book value. Analysts argue that the company should focus on earnings growth but management is willingly sacrificing short-term profits in order to build out its streaming services around the world. That rollout should be completed by the end of fiscal year 2021.
I think that's a sensible strategy with a clear and reasonably imminent return to optimized profits coming up ahead. Lions Gate shares really shouldn't be this cheap.
