Moviemaker Lions Gate (NYSE:LGF), famous for its Saw and Tyler Perry franchises, roared out of the gate last week with a Friday earnings report that sent its shares shooting up 7% in after-market trading. But by the time Monday rolled around, this lion had gone mute. As of this writing, the stock has not only given up all of its post-earnings gains, but actually sits slightly lower than it did before the news broke. Why?
No clue
Unfortunately, I can no more explain why the stock is down now than I can tell you why it shot up in after-hours trading on Friday. The only thing that has changed about Lions Gate between Friday afternoon and today is that a couple of bits of good news broke. Seeking Alpha published a transcript of the company's post-earnings conference call (by the way, thanks, guys). In it, we learned that Lions Gate CEO Jon Feltheimer promised to generate "$100 million in free cash flow every year," and more specifically asserted: "We are definitely heading yet again to another year [meaning this one] over $100 [million] in free cash flow" (before warning that "it's still too early to tell you what kind of growth we might expect for next year").
Also on this call, the company -- which produced Missing for Disney (NYSE:DIS) subsidiary Lifetime, The Dead Zone for GE's (NYSE:GE) USA Network, and Weeds for CBS's (NYSE:CBS) Showtime -- announced it will now co-produce English-language films and television programming with Mexico's Grupo Televisa SA (NYSE:TV). Yes, you read that right. Lions Gate is helping Televisa break into the English-language entertainment market (which should diversify revenue that is, at present, tied in large part to Televisa's deal to provide Spanish-language programming to Univision Communications). The benefits of the deal don't just flow one way, either. As Feltheimer confided, this deal with "the largest Spanish language media company in the world" will help "to open the Latin American market to [Lions Gate]."
Picture negative
This is hardly the kind of news you'd expect to bring a stock down. Conversely, the news on Friday wasn't exactly of the sort calculated to move the stock up, either. Revenue was up 57% in comparison to last year's Q2. But costs rose even more sharply, taking a saw (pardon me) to Lions Gate's profits. Direct operating costs nearly doubled year over year, and marketing spending rose by two-thirds. Result: The company reported net, and even operating, losses for the quarter. Per share, the net loss was $0.47, even worse than expected.
And the scariest part of all? Lions Gate grew its share count by 14% over the past year. Without all those extra shares to spread the losses around, the firm's per-share loss would have been even bigger.
