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‘Allegiant’ Stumbles, Lionsgate Stock Slides on Faltering ‘Divergent’ Series

Lionsgate shares are under pressure this morning after “Allegiant,” the third film in the “Divergent” franchise, stumbled at the box office, opening to a lackluster $29 million.

That represented a 44% drop from the debut of “Insurgent” at $52.3 million debut in 2015, and a 46% decline from the first “Divergent’s” $54.6 million launch in 2014. Lionsgate’s stock was down roughly 3% in early morning trading at just under $22.

The poor showing raises questions about the commercial viability of the fourth and final “Divergent” film, “Ascendant,” currently scheduled to debut in June 2017, when it will face off against heavy hitters such as “World War Z 2” and a reboot of “The Mummy.”

“It’s kind of asking to get clocked,” said Matthew Harrigan, an analyst with Wunderlich Securities.

Allegiant’s” headaches comes at a bad time for the company. Last month, the studio saw its ambitions to transform “Gods of Egypt” into a new franchises dashed after the $140 million fantasy adventure collapsed, bowing to a disastrous $14.1 million. Lionsgate is also grappling with the end of “The Hunger Games,” the dystopian series that took multiplexes by storm and transformed the studio from a purveyor of mid to low-budget films from Tyler Perry and the creators of “Saw” into the owners of one of Hollywood’s Tiffany franchises.

The “Divergent” series was intended to soften the fiscal hit from the end of “Hunger Games,” something it may no longer be able to do. Both audiences and critics were cool to the latest film — “Allegiant” received a doleful 10% “rotten” rating on Rotten Tomatoes and a B Cinemascore, a drop from the A enjoyed by “Divergent” and the A- that “Insurgent” received. As it did with “Hunger Games,” Lionsgate split the final film in the series into two parts, hoping to reap greater financial rewards. That may not have been wise. Some fans of the Veronica Roth books that inspired the films were incensed over the series finale, which could further depress the box office results.

“It’s a series that has clearly lost momentum,” said Eric Handler, an analyst with MKM Partners. “This is a case where a fourth chapter did not seem like the way to go.”

“Allegiant’s” performance has some on Wall Street doubting that Lionsgate has figured out a formula for young adult films — something it seemed to have discovered in the wake of “The Hunger Games” and “Twilight,” its other tween hit.

In a note, Ben Mogil, an analyst with Stifel Nicolaus, lowered Lionsgate’s rating to a “hold,” and wrote, “With “Allegiant” now faltering, the impact going forward is material and more importantly brings into question how deep the Young Adult market is, a market which has brought in numerous entrants amid a movie going environment which is increasingly very concentrated among fewer films.”

Eric Wold with B. Riley was more optimistic about the health of the company, maintaining a “buy” rating on the stock because of Lionsgate’s television business. He was bearish on “Allegiant’s” box office prospects, however, noting that “Batman v Superman: Dawn of Justice” opens this weekend, taking the Imax screens that had been used by the “Divergent” sequel, and the lion’s share of the movie-going crowd.

“We believe it is unlikely to gain any momentum in the coming weeks,” wrote Wold.

Some analysts think that Lionsgate will still break even on “Allegiant,” pegging its gross at roughly $70 million domestically, enough to trigger lucrative pay television deals. The damage, it seems, is more psychological.

“It’s not so much of an economic loss as it is one of opportunity cost and perception,” said Harrigan, adding, “They need to get some more good things going.”

Lionsgate lacks the sprawling media empires of a Comcast or a Disney, which means that the company often sees its stock price impacted when a major film opens. Disney or Universal, Comcast’s studio arm, can field flops like “John Carter” or “Battleship” without their shares taking a hit.

Even success can be problematic for Lionsgate, particularly given that investors can be tough critics. When “Divergent,” “Insurgent’s” predecessor, debuted in 2014, the film did well. However, the stock dipped 14% in the week leading up to its debut after the picture suffered a spate of bad reviews and box office projections were a pale shadow of those enjoyed by “Hunger Games.”

The “Divergent” experience may push the company to turn its back on the blockbuster game and turn its attention back to the world of Madea and Jigsaw.

“The company now is going to be pressed to shift from the ‘Hunger Games’ and ‘Divergent’ era of big budget franchises to return to its core roots of moderate- and smaller-budgeted films,” said Tuna Amobi, an analyst with S&P Capital IQ. “There are going to be more risk mitigators.”

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