Last year was a difficult one for investors in Lions Gate Entertainment (NYSE:LGF-A) (NYSE:LGF-B), but it may have marked a turning point for the beleaguered company. Shares fell by more than 50% as the turnaround long sought by shareholders appeared elusive. However, the movie studio and subscription video purveyor's increasing focus on streaming video is finally beginning to bear fruit, and its return to growth may finally be gaining steam.

Investors will be watching closely for signs of continued traction when Lions Gate releases the financial results of its fiscal 2019 third quarter after the market close on Thursday, Feb. 7. Let's recap Lions Gate's second-quarter results, look at some current events, and review the company's guidance to see if it provides any insight into what investors can expect when Lions Gate reports earnings.

Stephanie (Anna Kendrick, left) and Emily (Blake Lively, right) in A SIMPLE FAVOR

Stephanie (Anna Kendrick, left) and Emily (Blake Lively, right) in A Simple Favor. Image source: Lions Gate Studios.

A mixed bag

For the second quarter, Lions Gate reported revenue of $901 million, a decline of 4% year over year and topping analysts' consensus estimates for $892 million. Operating income increased 29% to $39 million, resulting in a loss per share of $0.67, much worse than the $0.07 gain in the prior-year quarter. The loss was the result of a one-time charge to settle a lawsuit brought by Starz shareholders after the $4.4 billion acquisition. Excluding that one-time impact resulted in adjusted earnings per share of $0.22, far exceeding expectations of $0.10.

The media networks segment was the sole high point, with revenue of $377 million, up 5% year over year, while profitability soared to $123 million, up 19%. This was driven by the second consecutive quarter of growth in both traditional cable and over-the-top subscribers for Starz. Domestic subscribers grew by 1.3 million to 25.1 million.

The best news for Lions Gate investors is the increasing number of distribution deals for Starz, which joined Virgin Media in the U.K. on Nov. 29. The company has plans to expand its availability in other territories and markets.

Current events

Streaming platform Roku (NASDAQ:ROKU) recently announced that Starz will join its premium add-on lineup. Subscribers to the free, ad-supported Roku Channel will be able to purchase Starz along with a number of other cable channels and network offerings and receive a consolidated monthly bill. This will undoubtedly expand the reach of Starz, which has been a big push for Lions Gate in recent years. 

The company has been rolling out Starz as a purchase option on Amazon (NASDAQ:AMZN) via its Prime Video to international audiences in the U.K. and Germany. At the same time, the Starzplay subscription video-on-demand (SVOD) service has been performing above the company's expectations after rolling out in the Middle East and North Africa. The SVOD service is also scheduled to debut in France, Italy, and Spain in the near future, and Lions Gate has plans to expand to 15 international markets in the coming three years.

Finally, there were reports earlier this month that Lions Gate is laying off a number of employees from its motion-picture segment after a tough year for the studio. Revenue from motion pictures declined more than 22% over the previous three quarters, due to difficult comps from the prior-year period. These moves come as Lions Gate is increasingly focusing on the streaming market for growth. The company has a big film slate for the coming year, with a sequel to its highly successful John Wick franchise, a reboot of Hellboy, and another chapter in the fan favorite Medea series of films.

Two men walking across an empty parking lot with a car in the background and a seagull in the foreground

Shadow (Ricky Whittle, left) and Mr. Wednesday (Ian McShane, right) in a scene from Starz American Gods. Image source: Starz. 

A look ahead

Lions Gate doesn't provide quarterly guidance to shareholders, preferring to keep its focus on the longer term. The company previously provided some broad strokes, saying it plans to deliver a three-year adjusted OIBDA (operating income before depreciation and amortization) compound annual growth rate in the mid to high single-digits.

While we don't want to get caught up in its short-term mindset, we can look to Wall Street for specifics -- and to gauge the overall sentiment toward the company. For the fiscal third quarter, analysts' consensus estimates are calling for revenue of $1.01 billion, a decline of about 12% year over year, and earnings per share of $0.08, a far cry from the $0.87 from the same quarter last year. It's important to note that the prior-year quarter was impacted by a one-time tax benefit of $165 million, or about $0.79 per share. Adjusting for that one-time benefit, analysts are expecting earnings per share that are flat compared to last year.

Investors are optimistic going into Lions Gate's financial release, as shares have rallied nearly 30% over the past five weeks. With its heavy bet on a shift to streaming, if the company fails to make progress, the resulting sell-off could be brutal. On the other hand, successful progress in the worldwide expansion of Starz is ongoing and will likely help the company maintain its recent momentum. We'll know much more when Lions Gate reports earnings after the market close on Thursday, Feb. 7.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Lions Gate Entertainment Class A, and Roku, Inc. The Motley Fool owns shares of and recommends Amazon, Lions Gate Entertainment Class A, and Lions Gate Entertainment Class B. The Motley Fool has a disclosure policy.