Lionsgate shares plummeted Friday after the movie and television studio reported worse-than-expected third-quarter earnings, due partly to disappointing profits from the final "Hunger Games" movie.
The Santa Monica entertainment company's shares fell $6.92, or 27%, to $18.53 in trading on Wall Street, its steepest decline since the company went public in 1998, according to FactSet.
Investors were rattled by the company's latest financial results. Lionsgate on Thursday said its adjusted profit was $40.7 million for the three months ending Dec. 31, down nearly 60% from the same quarter a year ago, due to lower film revenue. Total sales for the company fell 10% to $670 million during the quarter.
The company's stock has declined significantly since "The Hunger Games: Mockingjay — Part 2" hit theaters last fall and fell short of expectations. In a conference call with analysts, Lionsgate Chief Executive Jon Feltheimer indicated that the relatively weak performance of "Mockingjay — Part 2" could lower profits through 2017.
"Although 'Mockingjay 2' grossed $650 million at the worldwide box office, its domestic performance fell short of our expectations," Feltheimer said. He said the film was "underperforming profit margins by over $100 million" and had been hurt by the dominance of Walt Disney Co.'s "Star Wars: The Force Awakens."
"Mockingjay — Part 2," starring Jennifer Lawrence as the young-adult sci-fi hero Katniss Everdeen, grossed $281 million in ticket sales from the U.S. and Canada, 17% less than the previous installment.
Overall motion picture revenue was $506 million in the quarter, down from $590 million the year before. Profits from movies were squeezed by the costs of releasing four major theatrical movies during the quarter, compared with just two a year ago.
"At its core, the motion picture [segment] was much weaker than expected," Stifel analyst Benjamin Mogil said in a research report.
However, Lionsgate's television business, which makes shows such as "Orange is the New Black" for Netflix, continued to show signs of growth in the quarter. Television production revenue increased slightly to about $165 million, and the company said shows such as "Orange is the New Black" and ABC's "Nashville" should drive stronger growth during the fourth quarter.
J.P.Morgan analyst Alexia Quadrani, in a note to clients, said the stock sell-off was an overreaction, given the increases in the TV business.
"We believe a meaningful offset that investors are missing is the highly valued TV business, which has doubled in size from the time the first Hunger Games film," Quadrani said in her note.
Lionsgate's stock slide came amid broader market declines after a report showed the U.S. job creation slowed in January. The Dow Jones industrial average fell 1.3%, while the Standard & Poor's 500 index lost 1.9%.
Other media companies fell in Friday trading, including Viacom Inc. (down 5%), Twenty-First Century Fox (down 4%) and Time Warner Inc. (down 4%).
The stock declines for Lionsgate also reflected mixed investor reactions to the studio's disclosure that it is considering a merger with the premium cable channel Starz. In a regulatory filing, the "Hunger Games" studio said it "intends to explore whether there is a potential mutually beneficial combination of the two companies."
Media mogul John Malone a year ago acquired a minority stake in Lionsgate through a stock swap with Starz, which Malone also backs.
The filing suggests that the discussions are in early stages and that a deal is not certain to happen, but the companies are exploring a number of different deals that could benefit shareholders of both firms.
Starz's stock followed Lionsgate's, falling $6.93, or 22%, to $24.30.
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