Discovery, Liberty Global Invest in Lions Gate Entertainment Corp. Despite Weak Report

By Tim

Theo James and Shailene Woodley star in Insurgent. Two more films in theDivergent series are still to come. Image source: Lions Gate Entertainment.

Lions Gate Entertainment stock whimpered after the upstart studio reported worsening results in virtually every category on Nov. 9. Yet the losses didn't last long. Just prior to a Tuesday conference call with analysts, Lions Gate announced that Discovery Communications and Liberty Global had made strategic investments, giving each a 3.4% stake in the studio. Discovery CEO David Zaflon and Liberty Global CEO Mike Freeze will join Lions Gate's board as a condition of the investments.

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"This partnership is the latest in a series of alliances we formed with companies, including STUDIOCANAL, CBSand Televisa to take advantage of the unique position we have as a pure play content company in the global marketplace," S&P Capital IQ quotesCEO Jon Feltheimer as saying in a conference call with analysts to announce the deal and review fiscal-second-quarter results.

For the quarter, only cash from operations came in higher. And that's only because Lions Gate lost less money than in last year's fiscal Q2. Here's a closer look at the company's overall performance during the just-completed quarter:

Metric FQ2 2015 Actuals FQ2 2014 Actuals YOY Growth
Revenue $476.76 million $552.88 million (13.8%)
Non-GAAP Net Loss ($28.39 million) $32.98 million (186.1%)
Adjusted EPS ($0.19) $0.23 (182.6%)
Cash From Operations ($137.73 million) ($195.30 million) 41.8%

Data sources: S&P Capital IQand Lions Gate Entertainment press release.

Commenting on the results, Feltheimer said in a press release:

Director John Malone must be seeing the same thing. The Liberty Global Chairman already owned 2.97% of Lions Gate shares outstanding heading into the deal. With his company controlling another 3.4%, he's effectively become a 6% owner of the business. Further accumulation wouldn't be surprising.

What went right:Lions Gate is a long-term play, so as investors we need to know that Feltheimer and his team are making the kind of bets that can pay off big down the road. The laundry list he gave during the call with analysts sounds impressive enough.

"In the quarter, we acquired The Kingkiller Chronicle, based on the best-selling fantasy book series that ranked second only to Game of Thrones. We secured the rights to this coveted multiplatform property because of our emphasis on cross-divisional synergies, enabling us to commit to the simultaneous development of a feature film, television series and video game," Feltheimer said.

Other plans include adapting the video game franchiseBorderlandsand the board game franchise Monopoly. A retelling of the Robin Hood legend is also in the works, as well as a "multi-picture fantasy epic" based on Homer'sThe Odyssey to be directed by Francis Lawrence ofHunger Games fame.

What went wrong:Of course, there are no sure bets. Fiscal Q2 revenue dropped and losses widened in large part due to poor showings forAmerican Ultra andThe Last Witch Hunter. Lions Gate plans a $7.2 million writedown related to the latter. Overall, motion picture segment revenue fell 11%. Television production revenue dipped even further, down 20.7% on what the company said was "timing of episodic deliveries."

What's next:Looking ahead, Feltheimertouted a wide array of releases in the second half of the fiscal year. He's right to do so. The list of Lions Gate planned productions includesThe Hunger Games: Mockingjay Part 2, which debuts on Nov. 20 in the U.S., and The Divergent Series:Allegiant, which opens on March 18 of next year. Lions Gate's total backlog of contracted but not yet booked revenue from filmed entertainment came to roughly $1.2 billion at the end of fiscal Q2. In television, Lions Gate is banking on strong returns for upcoming seasons ofOrange Is the New Black andNashville to boost segment revenue in the second half of the year.

In the meantime, investors should keep watch on new deals and unexpected shifts in the pipeline; a sequel to the current run ofHunger Games movies, for example. Feltheimer teased the possibility in the call with analysts by proclaiming the forthcoming worldwide premiere ofMockingjay Part 2 as a "fitting grand finale for the current story arc."

The article Discovery, Liberty Global Invest in Lions Gate Entertainment Corp. Despite Weak Report originally appeared on

Tim Beyersdoesn't see the point of staring into the abyss. He's also a member of theMotley Fool Rule Breakersstock-picking team and theMotley Fool SupernovaOdyssey I mission but didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool owns shares of and recommends Lions Gate Entertainment. 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.

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