Why Lions Gate Entertainment Corp. Shares Shrank

Is this meaningful? Or just another movement?

May 30, 2014 at 4:18PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Lions Gate Entertainment (NYSE:LGF) were getting tamed today, falling as much as 13% after a disappointing earnings report.

So what: The production studio said revenue slid 8%, to $721.8 million, well below expectations of $823.6 million, while earnings per share of $0.33 were worse than estimates at $0.40. The decline was prompted, in part, by a decline in box-office releases in the year, from 19 in the prior year to 13. Management was optimistic about the company's prospects going forward; however, as CEO Jon Feltheimer said, "The trajectory of our business, the depth of our content pipelines and the ongoing generation of predictable income from our film franchises, television properties and filmed entertainment library continue to give us excellent long-term visibility."  

Now what: Financial results from movie production studios are notoriously volatile, as the success of the actual films themselves is hard to predict, and results can swing wildly from quarter to quarter depending on the timing of movie releases. The company has made a fortune off of its Hunger Games franchise, which has further releases coming out next November, and it's expanded on the asset with a related video game and theme park. Its recent release Divergent also performed well, and the company saw revenue from its TV segment rise 18% in the last year, to $447 million, on the strength of shows like Mad MenOrange is the New Black, and Nurse Jackie. Considering the diversity of Lions Gate's shows and movies, and its content pipeline, I'd expect the studio to bounce back from today's poor showing.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Lions Gate Entertainment. 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.

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