Lions Gate (LGF.A) Down 31.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Lions Gate Entertainment (LGF.A). Shares have lost about 31.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lions Gate due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lionsgate Q3 Earnings Lag Estimates, Revenues Up Y/Y

Lionsgate reported third-quarter fiscal 2020 adjusted earnings of 14 cents per share, which missed the Zacks Consensus Estimate by 36.4% and declined 60% on a year-over-year basis.

Revenues increased 7% year over year to $998.5 million and beat the consensus mark by 7.8%.

Segment Details

Motion Picture (47.5% of revenues) revenues increased 30.7% year over year to $473.9 million on solid contributions from theatrical releases, including Knives Out, and continued performance of John Wick: Chapter 3 – Parabellum.

Moreover, the Motion Picture segment raked in a profit of $49 million, up 12.6% year over year.

Television Production (19% of revenues) revenues declined 12.5% year over year to $189.4 million. Segment loss was $5.7 million against a profit of $21.2 million in the year-ago quarter.

The Media Networks segment (38.3% of revenues), formed after the acquisition of Starz, reported revenues of $382.4 million, up 4.3% year over year. Segment profit declined 23.9% to $102.1 million due to the ongoing investments in STARZPLAY.

Starz Networks revenues rose 1.7% year over year to $367.6 million. STARZPLAY International revenues in the quarter were $6.1 million compared with $0.6 million in the year-ago quarter. Streaming services revenues surged 85.1% year over year to $8.7 million.

At the end of the quarter, Starz had 28.5 million total global subscribers (from Starz, STARZPLAY Arabia and PANTAYA), up 2.1 million year over year. Global OTT subscribers reached 8.6 million

Total Media Networks domestic subscribers declined 1.2 million year over year to 24.1 million.

Operating Details

Adjusted OIBDA decreased 27.7% year over year to $124 million in the reported quarter.

Direct operating expenses, as a percentage of revenues, expanded 580 basis points (bps) on a year-over-year basis to 59.5%.

Moreover, distribution and marketing expenses, as a percentage of revenues, expanded 900 bps on a year-over-year basis to 28%.

However, general & administrative expenses, as a percentage of revenues, contracted 90 bps on a year-over-year basis to 10.9%.

Operating loss was $39.5 million in the reported quarter against an operating profit of $86.8 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and cash equivalents were $195.5 million compared with $232.6 million as of Sep 30.

Moreover, as of Dec 31, total film obligations and production loans amounted to $286.8 million compared with $480.2 million as of Sep 30.

Net cash flow from operating activities was $215.9 million at the end of the reported quarter, much higher than $181.2 million in the previous quarter.

Adjusted free cash flow was $88.4 million compared with free cash flow of $61.1 million in the previous quarter.

Outlook

Lionsgate expects STARZPLAY international subscriber growth between 15 million and 25 million over the next five years.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -14.29% due to these changes.

VGM Scores

Currently, Lions Gate has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Lions Gate has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.