Lions Gate Entertainment (NYSE:LGF-A) has seen its share of ups and downs over the past quarter, in part due to movie release delays and the limited success of some of its shows and features. But the company is positioned to see huge profits in coming months with the release of the latest sequels from the Hunger Games and Divergent series.
On this video segment of Market Foolery, host Chris Hill and Fool analysts Aaron Bush and David Kretzmann break down Lions Gate's third quarter results and preview what's in store for the future.
A full transcript follows the video.
Chris Hill: Let's start with Lions Gate Entertainment. Second-quarter revenue down 14%. Aaron, they didn't just miss on profit. They missed big on profit. Please explain to me why this stock is up around 4% this morning, because, I get that the final Hunger Games movie is coming. This is a bad quarter.
Aaron Bush: Yeah, it was not a good quarter. So, revenue and earnings both missed. A lot of their movies underperformed. I think it's important to note that one of their larger movies the quarter, Sicario, was actually pushed back a month, so that also sort of negatively affected it compared to what people were expecting.
And all of that sounds important, but I think it's important to recognize that, yes, Hunger Games movie is coming. Allegiant, which is part of the Insurgent franchise, is coming. And those movies are much bigger than a lot of these other, smaller movies even thrown together.
Then also, it's just important to recognize that the movie industry itself is pretty lumpy. And so, a lot of times the headlines that you read don't really tell the full story. And one other piece of news which is not really a part of the operations, but was announced earlier was that two other companies: Liberty Global and Discovery each acquired 3.4% stakes in Lions Gate. Therefore, they get to supply one member to the board of directors. And what...
David Kretzmann: They each get a director.
Bush: Yeah. And the main thing that both these companies have in common is John Malone.
Hill: So, I hear Liberty Global and I was just about to, say, John Malone.
Bush: This is John Malone.
Kretzmann: This is a puppet master. Content and people.
Bush: Yeah, so he's the puppet master. I really have no idea what he's gonna do in this whole web that he's been creating because there's also Starz that he's thrown into the mix, and some other companies. But it does not surprise me that we are seeing some collaboration. And I would expect to see some more. Maybe even M&A, overtime.
Hill: Unlike some activist investors that we talk about on this podcast from time to time, your Bill Ackmans, your Carl Ichans; John Malone really seems like someone who stays in his lane. He sticks to media and entertainment companies and by and large, his track record is pretty good. So, now I get it. Now I get why, again, even taking into account, it's a lumpy business, and it really is. I mean, even when you go outside the United States and look at the economics. Because global box office is important, but it doesn't mean the same thing in terms of actual dollars that the domestic box office does. But having someone involved like John Malone is probably a bullish sign for Lions Gate.
Kretzmann: I would definitely say so and I think, as Aaron mentioned with the lumpy results this quarter. We have to remember when we're talking about quarterly results and earning season, it's just a 90-day snapshot of a company. So, realistically, for a lot of the companies, it's not a whole lot meaningful to learn in terms of business is going to happen in 90 days. Of course, there are exceptions to that. Especially with a company like Lions Gate where you're putting out shows, movies, the timing really matters with what your performance is gonna look like. So, you probably wanna lengthen that time horizon. Maybe look at a company like Lions Gate more on an annual basis rather than solely on a quarterly basis.
Hill: And hope that whoever is heading up their procurement of scripts stumbles onto another Hunger Games. Because that has been massive for that company.
Bush: Pretty good at that, though.
Kretzmann: Just for the sake of my mood and happiness, I hope Sicario doesn't become a new series.
Bush: That's dark.
Kretzmann: Because that is not a movie I would want to see again. It was well done, but it was very dark.
Hill: You liked it, though?
Kretzmann: For what it was, it was really well done. But it's the type of movie that, you see it once and you do not need to see it again.
Hill: That's, by the way, as we're closing in on Thanksgiving here in the United States, that's a fun question I like to throw out from time to time. What's the best movie you've ever seen that you'd never want to see again? And there certainly are... there are some movies that are just like, "Wow, that was a really great film. I really hope I never see it again."
Wow, I gotta say. I was sort of interested in Sicario, and now I think it's... I'm bumping it down my list.
Kretzmann: Don't see it if you wanna improve your mood.
Hill: Duly noted.
Chris Hill has no position in any stocks mentioned. Aaron Bush has no position in any stocks mentioned. David Kretzmann owns shares of Lions Gate Entertainment. The Motley Fool owns shares of and recommends Lions Gate Entertainment. The Motley Fool recommends Starz. 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.
More from The Motley Fool
Want Blockbuster Returns? Buy Studios, not Movie Theaters
Regularly going to the movies is losing its allure, changing the way the industry does business.
Why Hertz Global Holdings, Lions Gate Entertainment, and Electro Scientific Industries Jumped Today
Find out which of these stocks could see buyout interest.
The Starz Buyout Is Paying Off for Lions Gate Entertainment Corp.
Despite a handful of timing-based headwinds, the content studio saw adjusted operating profits rise 66% year over year.