×
You will be redirected back to your article in seconds

Lionsgate looks to lead on young-adult franchises

Stock continues surge as final 'Twilight' to open this week

With the final “Twilight” movie opening this week, Lionsgate is primed to capitalize on its momentum with investors and take its place alongside Hollywood’s majors at long last.

Lionsgate shares soared 14% on Friday to close at $16.68 on the heels of a stellar quarterly earnings report that blew past analysts’ expectations mostly thanks to boffo homevid sales of “The Hunger Games.”

The stock has nearly doubled in value since January, when Lionsgate closed its acquisition of “Twilight” producer Summit Entertainment. The marriage of the “Hunger Games” and “Twilight” franchises, coupled with young adult-targeted prospects in the hopper and growing revenue from TV and digital markets, has Wall Streeters swooning over Lionsgate’s earnings potential in the coming years.

On Friday Alan Gould of Evercore raised his price target on the company’s shares from $18 to $20 and noted that “The Twilight Saga: Breaking Dawn — Part 2” is tracking well, with higher ticket pre-sales than for last year’s “Breaking Dawn — Part 1.”

Gould said he likes the stock for several reasons: the franchises, predictable earnings growth with lower P&A costs, the de-leveraging of the balance sheet from $1.1 billion this year to $230 million by March 2015 and the possibility of a small dividend.

“It is misperceived as simply an independent film company, yet it controls two of the dominant franchises in Hollywood,” Gould added.

The four “Twilight” films have generated more than $2.5 billion in worldwide box office for Summit, and the fifth is expected to eclipse the worldwide cume of the fourth, which topped $700 million.

In dissecting Lionsgate’s fiscal second quarter earnings, James Marsh of Piper Jaffray noted that “Hunger Games” alone generated revenue of $166 million — far above his $114 million estimate for the homevid release. “Hunger Games” generated nearly $700 million at the worldwide B.O.

“The cash flow pig from ‘Hunger Games’ is moving through the python, and we expect this to become a recurring theme with at least one more ‘Twilight’ and three more ‘Hunger Games’ films,” he wrote in a research note.

Beyond the B.O. gains, Lionsgate CEO Jon Feltheimer emphasized that the company’s revenue base has expanded during the past five years as its TV biz has grown. It has high hopes for its most recent entries, FX comedy “Anger Management,” toplined by Charlie Sheen, and the sudsy ABC drama “Nashville,” which Disney chief Bob Iger singled out as having growth potential for the network during the Mouse’s earnings call last week.

Lionsgate is also seeing growing returns from its library of film and TV titles as digital revenue augments sales of physical DVD and Blu-ray discs. Its Epix pay TV joint venture with Paramount and MGM has been a driver of digital licensing coin, first with Netflix and now with Amazon and others.

“Just five years ago, 70% of our library revenues were generated by packaged media,” Feltheimer noted. “This year, our library revenue should be up approximately 20%, with only 38% generated by packaged media as digital becomes an increasingly important and high-margin component.”

Feltheimer and Co. are also generating goodwill on Wall Street for delivering on past promises. Feltheimer issued a particularly bullish forecast during its May conference call with analysts, predicting that the combo with Summit was on track to generate $900 million in EBITDA over the next three years. Doug Cruetz of Cowen, who has an outperform rating on the stock, noted in his report Friday that his EBIDTA estimate for the quarter had been $33 million — less than a third of the reported $109.7 million.

“We believe (Lionsgate) shares have at least 20% upside relative to the next 12 months,” he wrote.

As “Twilight” fans begin camping out in anticipation of Monday’s premiere at the Nokia and Friday’s opening, investors are impressed by Lionsgate’s strategy for opening the next three “Hunger Games” pics in the pre-Thanksgiving slot in 2013, 2014 and 2015. Lionsgate recently signed Francis Lawrence, director of the second installment, “Catching Fire,” to helm the final two movies, “Mockingjay Part 1” and “Mockingjay Part 2.”

“We’re obviously impressed with what he’s doing with the franchise,” Feltheimer said.

Lionsgate also has “Ender’s Game” — another potential young-adult franchise based on a fantasy novel, with Asa Butterfield (“Hugo”) starring — opening on Nov. 1, 2013, and it is developing a number of other potential multi-installment properties.

On the Friday call, Feltheimer singled out “Divergent,” based on the fantasy-book series by Veronica Roth, noting that Lionsgate had already signed Shailene Woodley to star, Neil Burger (“Limitless”) to direct and set it for release on March 21, 2014 — the same slot it used this year for “The Hunger Games.” Summit closed a deal in 2011 to acquire film rights to the series, with Red Wagon toppers Douglas Wick and Lucy Fisher producing along with Pouya Shahbazian.

“To remind everyone, the books have already sold more than 2 million copies and are tracking ahead of both the ‘Twilight’ and ‘Hunger Games’ books at a comparable stage in their growth trajectory,” Feltheimer said.

Patrick Wachsberger, co-chairman of the motion picture group and a longtime expert in foreign sales at Summit, told analysts that Lionsgate had done “extremely well” with “Divergent” during AFM, with international territory sales already covering 80% of the movie’s budget.

Lionsgate also recently closed a five-year, $800 million revolving credit facility and paid off the balance of its $500 million term loan to buy Summit two years ahead of schedule, which will save it millions in interest payments.

“With an $800 million facility, a record $1.2 billion backlog that represents a sizeable portion of our future stream, a 15,000 title library, a significant box office share and a successful and diversified TV slate, we have now achieved critical mass and leveled the competitive playing field,” Feltheimer said.

Popular on Variety

More Film

  • Renee Zellweger Rufus Wainwright Sam Smith

    Renée Zellweger: Judy Garland Was 'My Childhood Hero'

    Awards buzz is building around Renée Zellweger for her performance as Judy Garland, emerging as a frontrunner in the Oscar race for best actress. But for her, the real prize was paying tribute to Garland, of whom she’s been a lifelong fan. “Nobody was prettier, nobody sang prettier…the adventures she had, [she was] my childhood [...]

  • Topic Studios

    Layoffs Hit Topic Studios as TV Division Relocates to West Coast (EXCLUSIVE)

    A small round of layoffs has hit Topic Studios this week in the television division, insiders familiar with the company told Variety. One of the insiders said three executives at the New York-based producer and distributor are out: senior vice president of scripted programming and Viacom alum Lisa Leingang, vice president of development Mona Panchal [...]

  • 'Downton Abbey' Music Gets 'Bigger, Better,

    As 'Downton Abbey' Hits the Silver Screen, the Music, Too, Gets 'Bigger, Better, Grander'

    When “Downton Abbey” fans hear that familiar strings-and-piano theme, a Pavlovian response ensues: Get to the television immediately, because you don’t want to miss a minute of the addictive Crawley family melodrama to follow. This week, with the “Downton Abbey” movie reaching theaters on Friday, fans can’t wait for their fix of Lady Mary and [...]

  • 45 Seconds of Laughter

    Film Review: '45 Seconds of Laughter'

    “Everyone is worth more than their worst act,” said Roman Catholic sister and anti-death penalty advocate Helen Prejean, and it’s with these words that “45 Seconds of Laughter” closes. It’s an apt sentiment on which to leave Tim Robbins’ sincerely felt documentary study of the therapeutic acting workshops run by his own theater company in [...]

  • Julie Andrews

    Julie Andrews Selected for AFI's Life Achievement Award

    The American Film Institute Board of Trustees has selected Julie Andrews as the recipient of the 48th AFI Life Achievement Award. The award will be presented to Andrews on April 25 in Los Angeles. The ceremony will be telecast on TNT. “Julie Andrews is practically perfect in every way,” said Kathleen Kennedy, chair of the [...]

  • 4127_D001_00007_RC Phyllis Logan stars as Mrs.

    'Downton Abbey' to Dominate Box Office Weekend With $30 Million

    The feature film version of “Downton Abbey” is heading for an impressive $30 million opening weekend at 3,079 sites for an easy victory at the North American box office, early estimates showed Friday. The launch of Brad Pitt’s space drama “Ad Astra” will land in second with about $20 million, while Sylvester Stallone’s action-thriller “Rambo: [...]

More From Our Brands

Access exclusive content