Lions Gate Entertainment (LGF-A -0.89%) is limping into its third-quarter report this week. Share prices have fallen 22% so far in 2016, and the stock plunged 35% over the last three months. Will this report take the edge off that market pain, or only drive the shrapnel deeper? Let's have a look at what to expect.
By the numbers
Lions Gate is not known for its detailed short-term guidance. Instead, the company sets long-term goals with cumulative financial targets. Currently, it is measuring itself against a three-year window ending in March 2017. Across that period, adjusted EBITDA earnings should end up totaling $1.2 billion to $1.3 billion. Last May, management noted that the trend is leaning toward the lower end of that range. Since then, this view has only been reaffirmed.
Here's how three of Lions Gate's most important financial metrics have been trending in recent years:
LGF Revenue (TTM) data by YCharts.
Some of the theatrical titles Lions Gate released during the quarter weren't exactly blockbuster hits. In particular, the company preannounced a $7.2 million writedown of its investment in the Vin Diesel action romp The Last Witch Hunter. That title had a $90 million production budget but only collected $27 million in domestic ticket sales. CEO Jon Feltheimer was disappointed, because Witch Hunter was meant to become a sequel-spawning franchise tentpole.
Vin Diesel and a flaming sword in The Last Witch Hunter. Image source: Lions Gate.
The final installment in the Hunger Games saga, on the other hand, had an even meatier $160 million budget but easily pulled its weight. With Jennifer Lawrence in the lead role, it boasted a $280 million domestic box office take, and $650 million globally.
Still, it's fair to call even that performance a disappointment because it was the weakest performer among the four Hunger Games titles despite its series-high production costs.
Investors are bracing for the worst in this report. Lions Gate is trading at levels not seen since the spring of 2014. The company is looking ahead to a couple of high-profile TV series launches in the next couple of quarters, but TV content always played a distant second fiddle to Lions Gate's high-powered theatrical operations.
In this report, investors should look for an update to that three-year EBITDA target, along with any color management can provide on its always-evolving production slate. Will Witch Hunter be forgiven its domestic revenue sins in light of a solid international performance, thus becoming a franchise starter after all? Can the TV segment capitalize on four Golden Globe nominations and start driving some revenue growth into this swooning operation?
We'll have some answers on Thursday night, and some more in the earnings call on Friday morning. The last three months have been brutal for Lions Gate investors, and now it's up to management to prove that the studio isn't falling apart.
