With the ongoing shifts in the media landscape, Lions Gate Entertainment (LGF-A) (LGF-B) has faced an uncertain future. The company has been a victim of the shift to streaming, pressuring its television-studio business.
On the other hand, numerous high-profile media tie-ups have left the mini-movie studio as one of the last remaining attractive players in a media space hungry for content creation. As a result, investors were unsure what to expect when Lions Gate reported its financial results.
For the just-completed fiscal first quarter (ended June 30, 2018), Lions Gate delivered revenue of $932.7 million, a decline of 7% year over year, but exceeding the analyst consensus of $882.65 million by nearly 6%. Adjusted earnings per share of $0.18 fell 63% compared to the prior-year quarter, but beat expectations for $0.15 per share.
Mila Kunis as Audrey and Kate McKinnon as Morgan in The Spy Who Dumped Me. Image source: Lions Gate.
Just the numbers
|
Metric |
Q1 2019 |
Q1 2018 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$932.7 million |
$1.0 billion |
(7%) |
|
Operating income |
$38.2 million |
$89.7 million |
(57%) |
|
Net Income (loss) |
($7.9 million) |
$173.8 million |
N/A |
|
Diluted earnings (loss) per share |
($0.04) |
$0.80 |
N/A |
Data source: Lions Gate First-Quarter 2019 Financial Release.
Looking a little deeper
Revenue from the motion-picture segment declined 23% year over year to $78.5 million, due to difficult comps related to the international theatrical release of the company's blockbuster La La Land and the home entertainment release of John Wick: Chapter 2 in the year-ago period. The media-networks segment produced revenue of $354.9 million, up 3% compared to the prior-year quarter, driven by growth in the company's over-the-top (OTT) business.
Domestic subscribers grew to 23.8 million, an increase of 300,000 during the quarter. The company saw growth in both its cable and OTT customers.
The television-production segment offered up the most positive results, with revenue of $279.4 million, up 7% year over year. Increases in domestic license fees and international revenue made up for tough comps from a licensing agreement for Starz's hit program Power in the prior-year quarter.
On the conference call, Lions Gate CEO Jon Feltheimer called special attention to the company's premium cable channel, Starz, which is succeeding as part of a number of skinny bundles, including DirecTV Now, YouTube TV, and Sling. Starz will launch on Hulu in October.
Starz is also being rolled out internationally, with a "strong start" on Amazon's Prime Video in the U.K. and Germany. Meanwhile, Feltheimer said the Starzplay service had become "the leading subscription video-on-demand platform in terms of revenue and subscribers" in the Middle East and North Africa. Starzplay will also launch in France, Italy, and Spain in the near future.
"Our global content machine is operating at full throttle, and we continue to invest in a programming and international rollout strategy at Starz that is working," said Feltheimer. "Our initiatives in the quarter continued to strengthen Lionsgate's stature as a unique and essential part of the media ecosystem."
Keanu Reeves stars as John Wick in Lionsgate Home Entertainment's John Wick: Chapter 2. Image source: Lions Gate.
Looking ahead
Analysts' consensus estimates for the upcoming second quarter are calling for revenue of $912.6 million, which would represent a decline of 3% compared to the prior-year quarter, and adjusted earnings per share of $0.02, compared to $0.07 a year earlier. The company doesn't provide quarterly guidance, but reiterated its forecast to deliver a three-year adjusted OIBDA (operating income before depreciation and amortization) compound annual growth rate in the mid- to high-single-digits.
By now, investors should be accustomed to the lumpiness that accompanies Lions Gate's business, particularly as it relates to major motion picture releases. The success of La La Land last year was a tough act to follow. An area of greater importance, however, is the international rollout of Starz, which gives the company a long runway and a stream of more predictable income going forward.
Stay tuned!
