Not so Entertaining (LGF, IMAX)
Some of the entertainment stocks in my portfolio have been taking a real pounding lately.
Some of my old standbys are just standing around ... Marvel (MVL -- free real time quote from ADVFN) has been flying under the radar with no recent film news, and I think they'll be stable until news comes out about next year's films (though I also think this is a buying opportunity as we wait for Spiderman III and Xmen III). Dreamworks Animation (DWA -- free real time quote from ADVFN)has also been relatively free of news in recent weeks if you ignore what's been happening with their parent studio -- Wallace and Gromit didn't do as well as I would have liked, but Madagascar certainly evolved into a significant film and I'm looking forward to seeing how management handled the DVD market with this one in light of their Shrek 2 mistakes last winter.
But I've noticed some significant weakness in particular in IMAX (IMAX -- free real time quote from ADVFN) and Lionsgate (LGF), and my positions in both are down in the neighborhood of 25% today.
IMAX had a significant downgrade from an analyst who doesn't see mid-size theaters adding their MPX technology to multiplexes -- that may be true, and it sounds like the analyst did a solid channel check, but I don't see why it's a big concern. At this point in their growth cycle with significant overseas expansion and still very few theaters built in the US they don't have to win over the small operators yet. Small theaters follow the trends and have much less flexibility with capital spending than do their large competitors. If they need IMAX to compete in 10 years, perhaps they'll get it. I'm not worried that they don't yet have an interest.
More importantly, IMAX has had a great holiday season with Polar Express and Harry Potter -- more evidence that their strategy of remastering and releasing Hollywood hits and event movies is working great. As they continue to work out the installation backlog and gain new orders, we'll see these films all bringing in additional sales at very little additional cost. I see long term growth ahead (though it's still plenty risky -- the fancier and cheaper home theaters get and the shorter the time lag for DVD releases, the more the "event movie" and the IMAX experience will have to fight for attention). I filled out my IMAX position a number of weeks ago, and now I'm just sitting and watching.
Lionsgate (LGF-- free real time quote from ADVFN) is another matter -- but on the whole I'm optimistic moving forward. They changed their name (from Lion's Gate to Lionsgate -- WOW!), but more importantly the CEO recently spoke about guidance and about the need to refocus on their core competencies.
Their problems this year were the kind of standard Hollywood problems that this small company is not supposed to have -- they aim to buy and create niche film and other entertainment properties on the cheap, promote them effectively but inexpensively, and make money in the corners of the market where the big studios can't or won't succeed (horror, indie films, etc.). This year they had a few films with bigger budgets and significantly larger promotion budgets (Lord of War, Devil's Rejects, In the Mix), and all three of those films flopped at the box office and may or may not even break even on DVD and cable distribution. In light of this, I think management's assertion that they made a mistake in spending so heavily on these films is a good thing -- they recognize a mistake, they plan not to make it again. And even with those higher profile mistakes, the huge successes of Crash, Diary of a Mad Black Woman, and Saw II (a particularly big hit which I wrote about here) helped them have a decent year. We'll see how they do next year, but this is always going to be a volatile one.
I'm not making any decisions based on any of this stock price movement -- I fully expect both IMAX and LGF to continue to make dramatic moves on short term news, including both successful and unsuccessful film releases.
Some of my old standbys are just standing around ... Marvel (MVL -- free real time quote from ADVFN) has been flying under the radar with no recent film news, and I think they'll be stable until news comes out about next year's films (though I also think this is a buying opportunity as we wait for Spiderman III and Xmen III). Dreamworks Animation (DWA -- free real time quote from ADVFN)has also been relatively free of news in recent weeks if you ignore what's been happening with their parent studio -- Wallace and Gromit didn't do as well as I would have liked, but Madagascar certainly evolved into a significant film and I'm looking forward to seeing how management handled the DVD market with this one in light of their Shrek 2 mistakes last winter.
But I've noticed some significant weakness in particular in IMAX (IMAX -- free real time quote from ADVFN) and Lionsgate (LGF), and my positions in both are down in the neighborhood of 25% today.
IMAX had a significant downgrade from an analyst who doesn't see mid-size theaters adding their MPX technology to multiplexes -- that may be true, and it sounds like the analyst did a solid channel check, but I don't see why it's a big concern. At this point in their growth cycle with significant overseas expansion and still very few theaters built in the US they don't have to win over the small operators yet. Small theaters follow the trends and have much less flexibility with capital spending than do their large competitors. If they need IMAX to compete in 10 years, perhaps they'll get it. I'm not worried that they don't yet have an interest.
More importantly, IMAX has had a great holiday season with Polar Express and Harry Potter -- more evidence that their strategy of remastering and releasing Hollywood hits and event movies is working great. As they continue to work out the installation backlog and gain new orders, we'll see these films all bringing in additional sales at very little additional cost. I see long term growth ahead (though it's still plenty risky -- the fancier and cheaper home theaters get and the shorter the time lag for DVD releases, the more the "event movie" and the IMAX experience will have to fight for attention). I filled out my IMAX position a number of weeks ago, and now I'm just sitting and watching.
Lionsgate (LGF-- free real time quote from ADVFN) is another matter -- but on the whole I'm optimistic moving forward. They changed their name (from Lion's Gate to Lionsgate -- WOW!), but more importantly the CEO recently spoke about guidance and about the need to refocus on their core competencies.
Their problems this year were the kind of standard Hollywood problems that this small company is not supposed to have -- they aim to buy and create niche film and other entertainment properties on the cheap, promote them effectively but inexpensively, and make money in the corners of the market where the big studios can't or won't succeed (horror, indie films, etc.). This year they had a few films with bigger budgets and significantly larger promotion budgets (Lord of War, Devil's Rejects, In the Mix), and all three of those films flopped at the box office and may or may not even break even on DVD and cable distribution. In light of this, I think management's assertion that they made a mistake in spending so heavily on these films is a good thing -- they recognize a mistake, they plan not to make it again. And even with those higher profile mistakes, the huge successes of Crash, Diary of a Mad Black Woman, and Saw II (a particularly big hit which I wrote about here) helped them have a decent year. We'll see how they do next year, but this is always going to be a volatile one.
I'm not making any decisions based on any of this stock price movement -- I fully expect both IMAX and LGF to continue to make dramatic moves on short term news, including both successful and unsuccessful film releases.
This article posted by One Guy @ 12/20/2005 10:30:00 AM 0 comments
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