Lions Gate Entertainment Corp. (NYSE:LGF)-Long

Transcription

MCINTIRE INVESTMENT INSTITUTE
AT THE UNIVERSITY OF VIRGINIA
Lions Gate
Entertainment Corp.
(NYSE:LGF)-Long
Jessica Jie Gao| Sep.26th, 2013
1
McIntire Investment Institute
AGENDA
1
•  Company Overview
•  Main Thesis Points
2
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Movie theatres help to boost earnings
Television provides the company’s steady growth
Rapid expansion of distribution
Effective management and financial control
3
•  Risks
4
•  DCF Model
COMPANY OVERVIEW
•  Founded in 1997, the youngest among top 10 Hollywood
film production firms.
•  The largest independent film production firm
•  An international company with a presence in motion
picture production, TV programming, home
entertainment and channel platforms.
•  The producer of Twilight: Saga and The Hunger Games.
3
COMPANY OVERVIEW
4
STOCK OVERVIEW
Price: 36.04
52 week low-high: 14.56 – 37.81
Vol/Avg: 3.98M/1.27M
Mkt Cap: 4.64B
P/E: 16.97
5
Inst.Own: 97%
Revenue: 2.7B
Beta: 0.74
EPS (ttm): 1.99
COMPANY OVERVIEW
Lionsgate
Mandate
UK
Pictures
6%
3%
Internati
onal
16%
Televisio
n
12%
6
Other
1%
Segment
Sales
Television
Production
15%
Theatrica
l
23%
Home
Entertain
ment
39%
Motion
Pictures
85%
#1: FILM INDUSTRY
Movie theatres help to boost earnings
Thriving of film industry
Low production cost
Good contents: bona fide blockbusters
Easy Targeted Market
7
OVERVIEW OF FILM DIVISION
•  Over $400M at North America box office in the 1Q FY
2013, increased by 39.6%.
•  7% North America theatrical market share, and 8.4%
theatrical market share in foreign countries, including
Latin America, Russia, the UK, an China.
•  Ranking the 7th in domestic movie market.
8
THRIVING INDUSTRY
“Domestic box office revenues grew 25% from 2006 to
2010 from $25.5B to $31.8B, and that.
Worldwide entertainment industry grew from $449B to
$745B.”
--CCIA(Computer and Communications Industry
Association)
Best-of-industry Position:
Box office revenues of Lionsgate have grown by
327.1% from 2006 to 2012, much higher industry
average.
9
LOW PRODUCTION COST
Average historical production budget:
Lionsgate: <$35M
Major studio: >$70.8M
(Major studios includes: Warner Bros., Universal, Walt
Disney, 20th Century Fox, Sony Pictures, Paramount
Pictures.)
10
BONA FIDE BLOCKBUSTERS
•  Lionsgate has some of the best content in the industry, from movies to TV
series.
•  2 out of 7 most anticipated films in 2013 are from Lionsgate. (NY Times)
•  Bona fide blockbusters can be foreseen:
Divergent
Jul, 2014
Upcoming
young adult
franchises.
11
Step Up
5:
Ender’s
Game
Sep, 2014
The last
installment of
Step Up series.
Nov, 2013
Potential to be
turned into
trilogies or
more.
The Hunger
Games:
Catching Fire
Nov, 2013
2nd part of the series.
Two other parts will
be released in 2014
and 2015.
Divergent:
Hunger Game:
Catching Fire
Divergent book series is approaching the
300 million copies sold mark. At the
current phrase Divergent is actually on the
same track and same amount of sales as
Hunger Games at this point in its release.
Box office revenue of Hunger Games 1:
• 
• 
Domestic: $408M (NO.13)
Oversea: $283.2M (NO.58)
• 
Analysts may currently be underestimating the
potential of this movie, as the international box
office is set to be much higher.
• 
“Catching fire will gross approximately $950M
worldwide when it opens in mid-November…”
-- Alan Gould, managing director of Evercore
Partners
12
Most Anticipated films this fall:
NO.
Movie Name
Trailer Views
Book sales
Production
Company
1
The Hunger Game:
Catching Fire
28,950,110
67,000,000
Lionsgate
2
Thor: the dark world
9,657,341
120,000
Walt Disney
3
The Ender’s Game
5,963,200
11,000,ooo
Lionsgate
4
Gravity
7,125,020
-
Warner Bro
5
Godzilla
186,611
4,300,000
Warner Bro
6
Wolf of Wall Street
114,929
1,700,000
Red Granite Pictures
7
The Wolverine
4,348,587
670000
20th Century Fox
•  Correlation between box office revenue and trailer views: 0.241
•  Correlation between book sales and box office revenue: 0.619
•  Correlation between comics sales and box office revenue: 0.334
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VAR: ONLINE SURVEY
The questionnaire is designed to
understand how young adults
truly think of
The Hunger Games and their
preferences over film genre.
*29 Reponses have been collected;
due to the small sample size, the
conclusion maybe biased.
14
EASY TARGETED MARKET
•  Lionsgate targets young adults’ market which is easy to approach.
•  Lionsgate focuses on making adventure, action and horror movies.
“A side benefit of our genre focus, whether in adventure or horror is we appeal to
younger, digitally avid market.”
-- Steve Beeks, Lionsgate’s CO-COO
“Typically, the most dependable filmgoer have been the young adults who “goes to
the movies” to get away from home. Young adults offer another feature that
filmmakers love—they are an easy sell because they are lacking in discrimination
and sophistication.
--Dr. Anney Kodas, Professor in Media Studies, Rice University
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Company
Target Market
Favorite Genre
Genres
Market Share
Lions Gate
Young adults
Adventure, Action, Horror
41.6%
Dreamworks
Teenagers
Adventure, Science Fiction
21.38%
Disney
Kids of 4~12
Animation
17.6%
Paramount
Mix
Romantic, Family, Comedy
52.37%
EASY TARGETED MARKET
Data from www.numbers.com
Data from my online survey
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VAR: GENRE TREND AT US BOX OFFICE
“A limited range of special effects-based films from the action/adventure and
fantasy/science fiction genres have come to dominate the US box office at the
Expense character- and narrative-driven films (crime/thriller and drama films)
that were previously identified as the most popular.”
-- “Genre trends at US box office, 1991~2010” by Nick Redfern
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#2: TELEVISION INDUSTRY
Television provides the
company’s steady growth
Popular contents
Misperception:
Television is dying
Cooperation with Netflix
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TELEVISION DIVISION OVERVIEW
•  Diversified television business is continuing its 13-year trajectory of
profitable growth: compound annual growth rate has been nearly
25% since 2000.
•  Presence in nonfiction programming with more than 10 different
series now ordered or airing in prime time.
•  Just acquires television rights to the #1 New York Times Bestselling
series Crossfire.
•  Orange is The New Black is the most popular TV series on Netflix.
•  Weeds is the most popular TV series on Showtime.
19
MISPERCEPTION #1
•  Misperception: Televisions are dying.
“Television as a delivery method has no trend to die; rather, the platform
evolves with time and technology… Nowadays people prefer to watch television
on websites such as Netflix, Gulu, and Amazon….”
-- Fan Mai (PhD at Media Study Department, University of Virginia)
•  Steady growth higher than industry average
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VAR #3
CASE STUDY: THE FUTURE OF TELEVISION
•  “TV revolution” is coming due to the rise of on-demand
viewing, particularly over Internet, such as Netflix, Gulu, and
Prime Instant Video.
•  How does on-demand viewing on Internet affect Lionsgate?
Pros:
--Created new revenue stream for old films and old seasons of TV shows.
--More platform are available for distributions.
Cons:
--these internet video
services are competing for
viewers’ time, which hurts
TV ratings.
--Undermines advertising
revenues.
21
COOPERATION WITH NETFLIX
Why Netflix wins?
•  Big Data:
–  1/3 of downloads on the Internet during peak periods on any
given day are devoted to Netflix.
–  2012, 54.7% watched TV series streamed online than on physical
television.
–  Netflix looks at 30 million “plays” a day so that it has mindblogging access to consumer sentiment in real time.
•  Conclusion: having a very molecular understanding of user data is
going to have a big impact on how things happen in television.
•  On demand distributors share a great deal of data with the studios
from which they’ve purchased films.
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COOPERATION WITH NEW DIGITAL BUYERS
How Lions Gate survives and benefits from “TV
revolution”?
•  Leadership in producing and delivering content for new digital
buyers. In 2013,
–  Partnership with FX results in orders for 2 additional highprofile comedies.
–  Initial foray into creating content for digital platform: produced
“Orange is the New Black” for Netflix which has been renewed
for a second season.
–  A series order from Hulu.
–  A deal for a pilot script for Amazon.
•  A new multi-year licensing agreement that will make Netflix the
exclusive subscription streaming in UK and Ireland for first-run
feature films from the studio.
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– 
#3: RAPID EXPANSION OF DISTRIBUTION
Expansion of
distribution
Channels & Home
Entertainment
International
Cooperation
Marketing Strategies
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#3:WIDE SPREAD DISTRIBUTION
DVD &
Blu-ray
Electronic
distribution
Blockbuster
iTunes
Netflix
Rentrak
Wal-Mart
Other mass merchandisers
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Pay & free TV
Showtime
Amazon
Microsoft
FX
Netflix
Hulu
Disney Channel
YouTube
Sony
USA Network
HOME ENTERTAINMENT
•  Home entertainment business is among top 5 major studios with
9.5% market share.
•  High operating margins achieved through new distribution and
replication agreement with Fox and Cinram.
•  Partnership with Samsung to expand 3D content in home
entertainment market. (ahead of market.)
•  Partnership with Internet Explorer to publicize.
•  Other digital platforms expand sales opportunity.
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INTERNATIONAL SALES
•  International growth has been robust:
–  International box office gross for FY 2012 was $1.25 Billion, increased
by 46%
–  Output deals cover more than 80% of the world’s movie-going
population.
–  The number of episodes distributed internationally has grown from 430
in FY2012 to more than 1000 in FY 2014.
–  Established new output deals with leading distribution partners in
France, Germany, Russia, Spain etc.
•  Celestial Tiger Entertainment operates 6 branded channels. This
year, it has achieved 27 carriage deals and launched 10 new on
demand and over the top services across 16 platforms in 11 Asian
territories.
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INTERNATIONAL SALES
•  Winner in Cannes Film Festival:
–  Sold international rights to 9 movies
–  Generates more than $250M
–  Sales topping last year’s company
record by more than 50%.
Main international
market
New international
Market
Baltic
UK
Poland
Czech
Republic
Hungary
Switzerland
Middle East
Romania
Taiwan
India
China
Japan
Israel
Middle East
Turkey
Hong Kong
Italy
“Our strong performance at Cannes this
year is attributable in part to the
international framework we’ve set in place
combining output deals around the world
with self-distribution in key territories such
as UK and Latin America. This
infrastructure gives us enormous flexibility
an is already delivering remarkable results.”
--Patrik Wachberger,
Lionsgate Motion Picture Group Co-Chair
28
CHINESE MARKET
•  May, 2013. Dalian Wanda Group bought AMC Entertainment, the 2nd largest
U.S. theater chain for $2.6 Billion to become the world’s biggest cinema
owner. It was also the biggest purchase of a U.S.
•  China, which recently surpassed Japan as the 2nd largest media market
outside the U.S., has taken steps to ease restrictions on the number of foreign
films it allows into the country each year under a revenue-sharing agreement.
•  Lionsgate Signed agreement with Youku through Celestial Tiger
Entertainment. The agreement grants Youku the rights to make more than
200 Lionsgate titles, which is the largest international contract Youku ever
made.
“China’s moviegoing market is still relatively small — total
ticket sales were just over $2 billion last year, compared with
the $10 billion spent in the United States — but it is growing
fast, by 40 percent every year.”
--Sarft( State Administration of Radio, Film and
Television )
29
MARKETING STRATEGY
Disciplined Strategy to create the leading studio
30
#4: MANAGEMENT
Effective Management and
Financial Control
Quick expanding
by acquisitions
Comparative advantage
in financials
Misperception:
the price is over-valued
31
CEO
During Mr. Feltheimer’s 9-year tenure
as CEO, Lionsgate has
•  Increased its revenue from $180M to
a projected $2B this year
•  Grown its market capitalization
•  Built a strong balance sheet
supported by significant available
cash and a $340M JPMorgan credit
facility
•  Created a unique and successful
business model
Jon Feltheimer
CEO
32
FAST EXPANSION BY ACQUISITIONS
Acquisitions
1998: Termile Art Productions
Sterling Home Entertainmen
Cinepic Film Properties
1999: Mandalay Pictures
International Movie Group
CBS joined Lionsgate in a 50/50
partnership in TVGN and TVGuide.com as
the channel continues its transformation to
a full screen entertainment channel.
It has increased its full screen penetration
from 32% to 83% today.
Summit Entertainment let Lionsgates
successfully break into the production of
high-grossing Hollywood pictures that had
previously been dominated by Walt Disney,
Time Warner, Sony…
33
2001: Trimark Holdings, Inc
2003: Artisan Entertainment
2005; Modern Entertainment
2006: Dermar-Mercury
2007: Roadside Attractions
2008: TV Guide Network
TV Guide.com
2009: Epix (Co-owner)
The EPIX channel
has emerged as an
innovative
technology leader in
the pay TV space
with 10M subscribers
in 40M homes.
2012: Summit Entertainment
EFFICIENT FINANCIAL CONTROL
•  LGF Beats market expectations continuously.
34
COMPARATIVE OUTPERFORMANCE
•  Lionsgate outperforms its competitors
in profitability and financial strength.
CNK: Cinemark Holdings Inc.
RGC: Regal Entertainment Group
DWA: dreamWorks Animation Inc.
35
COMPARISON CHART
36
COMPARATIVE OUTPERFORMANCE
•  LGF has a very clean balance sheet. There are minimal “bad assets”
such as goodwill assets, deferred long term assets and intangible
assets.
•  The company has grown its free cash flow by an average of more
than 20% annually over the past 5 years. New acquisitions could be
made next year.
•  Income statement will stay strong.
37
38
SUMMARY
Forerunning in film
production
Efficient
Management
Resurgence of
television
Strong Long
Financial control
Rapid Expansion of
distribution
39
RISKS
•  The movie business is inherently volatile with big hits and misses.
•  Any disappointment over the box offices will hurt the stock hard.
•  LGF earns 85% of its revenue from the production and distribution
of motion pictures, making the firm’s business particularly
vulnerable to the unpredictability of box office performance.
•  The costs of producing and marketing feature films is high and may
increase in the future.
40
APPENDIX: DCF MODEL
41
SUGGESTION
•  Initiate long position at 3%.
•  Time is critical:
–  Buy it after the recent adjustment of stock price.
–  Consider to sell it 2 weeks after the release of “The Hunger
Games: Catching Fire”
–  Repurchase next year.
42
QUESTIONS
43

Lions Gate Entertainment Corp. (NYSE:LGF)-Long

Transcription

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