With all of the euphoria and buzz surrounding the opening of Hunger Games: Catching Fire, many investors seemed to have forgotten how much more depth Lions Gate Entertainment (LGF-A -2.25%) has to its arsenal. Just like Katniss Everdeen's always replenished quiver, the company has more to it than the wildly popular series of books by Susan Collins. And investors would be wise to look further into the company despite rising competition form Time Warner (TWX) and Viacom (VIAB)
Though you might not know it from second quarter revenue, which declined a whopping 29% year over year. However, there's a justifiable reason for this decline. It's not often that a company seeing massive revenue declines offers reason for optimism, but Lions Gate Entertainment is one of those rarities.
While strong near-to-medium term potential exists, Foolish investing is about the long haul. That being the case, we'll take a look to see if Lions Gate Entertainment is likely to offer more long-term investment potential than other companies generating big revenue on the silver screen, such as Time Warner(TWX) and/or Viacom(VIAB).
Hunger Games skewing results
In regards to past revenue performance, take a look at Lions Gate Entertainment over the past year:
LGF Revenue (TTM) data by YCharts
This pattern above would often be a red flag. For Lions Gate Entertainment, it's nothing of the sort.
The primary reason Lions Gate Entertainment's revenue suffered was difficult year-over-year comparisons due to the home entertainment release of The Hunger Games.
Here's where it gets interesting. Take a good look at that revenue spike above. Now consider that The Hunger Games had an IMBD rating of 7.2. Though it's not a guarantee, movies that receive high IMDB ratings often generate the most revenue. The exciting part is that the early rating for The Hunger Games: Catching Fire is 8.2. It's rare for a sequel to be more successful in rating/quality than the original, but that looks to be the case here. Therefore, revenue is likely to see an even bigger spike than last time, which should lead to stock appreciation.
If you're thinking long-term, then you will be happy to know that The Hunger Games: Mockingjay I, and The Hunger Games: Mockingjay II are due out over the next two years. Even if those movies fail to impress, a loyal audience is already sucked in.
Lions Gate Entertainment also has 30 TV shows on 20 networks, including Mad Men, Nurse Jackie, Anger Management, and Nashville.
It looks like Lions Gate Entertainment will be difficult to beat from an investing perspective, but let's check out Time Warner, owner of Warner Bros.; and Viacom, owner of Paramount Pictures.
Time Warner: broad diversification
Time Warner operates in three segments: Networks, Film & TV Entertainment, and Publishing. However, Networks and Films & TV Entertainment are where the most future potential exists.
In regards to Networks, TBS is the No. 2 ad-supported cable network for primetime in age demographics 18-34 and 18-49. TNT is ranked No. 2 in the 25-54 demographic for total day. CNN saw ratings increased for total day in its key demographic by 15%. HBO also received 27 Emmy Awards.
In regards to feature films, Warner Bros. was the leading domestic film studio at the box office this year, with hits such as The Conjuring, We're the Millers, and Gravity. If you're looking for future potential, The Hobbit: The Desolation of Smaug is due out on December 23.
As expected, due to the difference in size, Time Warner generates a lot more cash flow than Lions Gate Entertainment. Over the past 12 months, Time Warner has generated $3.98 billion in operating cash flow, whereas Lions Gate Entertainment has generated $244.55 million in operating cash flow over the same time frame. This has no impact on stock appreciation, but it does mean that Time Warner is more capable of rewarding its shareholders via generous dividends and buybacks. Time Warner currently yields 1.70%, whereas Lions Gate doesn't offer any yield. Put simply, while Lions Gate Entertainment offers more stock appreciation potential, Time Warner should offer more resiliency to economic and stock market downturns.
Where Viacom fits in
Viacom has generated operational cash flow of $3.08 billion over the past 12 months, and it currently yields 1.50%. Like Time Warner, it's diversified, owning many popular networks, including but not limited to: MTV, VH1, CMT, BET, Nickelodeon, TV Land, and Spike. On the feature film side, potential looks good with the following films soon to be released: Anchorman 2: The Legendary Continues, The Wolf of Wall Street, Labor Day, and Jack Ryan: Shadow Recruit.
Viacom delivered solid numbers across the board in the fourth quarter, with Media Network revenue increasing 7%, Filmed Entertainment revenue jumping 11% (World War Z played a big role), and Advertising revenue improving 10%.
The best investment
All three companies are likely to be quality long-term investments. Lions Gate Entertainment offers the most top-line potential, especially with The Hunger Games franchise at its side. Viacom and Time Warner are more methodical investments, where you're likely to see moderate stock appreciation while collecting halfway decent yields.
