The Hunger Games Eats up the Competition
by Jeannette Di Louie, Investment U Research
Monday, December 2, 2013
Last month, movie buffs flocked to theaters around the U.S. to catch the much-anticipated premiere of the newest Hunger Games movie, Catching Fire.
Over opening weekend, the cinematic production – based on the second book of Suzanne Collins’ best-selling young adult series – garnered $142.8 million. That puts it in fourth place for the most profitable U.S. movie opening, behind only:
- Disney’s (NYSE: DIS) The Avengers in 2012, which made 207.4 million
- Paramount Pictures’ Iron Man 3, which earned $174.1 million earlier this year
- Time Warner’s (NYSE: TWX) Harry Potter and the Deathly Hallows, Part 2 in 2011, which brought in a tidy $169.2 million for its first weekend.
So it’s safe to say that Catching Fire did very well for itself.
Nor should it lose momentum going forward, since the original Hunger Games movie grossed a total of nearly $408 million in U.S. sales alone by Aug. 21, 2012. That’s a healthy amount considering how the film cost an estimated $78 million.
Admittedly, producer Lions Gate Entertainment Corp. (NYSE: LGF) fell on Monday, since Catching Fire was expected to net $166 million in sales. But that doesn’t change the fact that it’s still up 100% over the past year… and that it still has two more movies to make in the series, due out in 2014 and 2015 respectively.
In other words, this pullback can be seen as a buying opportunity. This stock still has momentum left to it.
Lions Gate Still Has Some Roar Left to It
With the stock down 10.46% by market close on Monday afternoon, it’s safe to say investors were overreacting to the news of Catching Fire’s perceived “failure.”
Not only is The Hunger Games sequel alive and well, but Lions Gate still has a strong lineup of hits coming up. This includes the adaptation of another smash hit young adult series, Veronica Roth’s Divergent.
Bookworms and moviegoers alike are already talking about that one, so it’s likely to set a few records itself after it debuts in March. After the success of Harry Potter, the young adult genre has taken off among both children and grownups, making it a very profitable genre that Lions Gate is well situated in for the foreseeable future.
That’s part of the reason why it was able to practically double its gross profit between its fiscal year 2012 and 2013, from $679 million to $1.3 billion. Better yet, according to company expectations, “the company is poised to generate over $1 billion at the domestic box office and another $1 billion internationally for the second year in a row.”
Essentially, Lions Gate knows what it’s doing, with two fingers to the pulse of the market and what makes it tick. Wall Street will figure that out again soon enough…
This stock isn’t going to stay down for long.
A Few Other Noteworthy Hollywood Investments
Of course, Lions Gate is hardly the only Hollywood production company out there that knows how to generate profits…
Take Paramount Pictures, which is owned by Viacom Inc. (Nasdaq: VIA). The business owns the rights to the always popular Star Trek series, which continues to generate ticket sales from old and new nerds alike.
Its most recent remaking of the classic sci-fi series generated gross sales of $2.57 million in 2009 and a healthy $2.28 million this year for the sequel Into Darkness. And, like Lions Gate, it has a steady stream of upcoming films it’s banking its hopes on.
But should any of those flop, Viacom is well-diversified to take the hit. Besides Paramount, its leading brands include MTV, VH1, CMT, BET, Nickelodeon and Nick Jr., Comedy Central and a host of other profitable venues. While its profits didn’t jump nearly as well as Lions Gate’s did last year, they still rose from $6.89 billion to $6.99 billion.
Plus it offers a respectable dividend of 1.2% to its loyal shareholders.
But if you want even further diversification, look no further than Universal Pictures, which is owned by Comcast (Nasdaq: CMCSA).
Universal itself has a plethora of holdings, including its theme parks in Orlando and Hollywood, which generates over $2 billion in revenue every year. That’s a nice asset to have to say the least.
But Comcast has plenty more to its name, including cable communications, cable networks and broadcast television segments.
All together, the company generated $29.4 billion in 2010, $39.24 billion in 2011, and $42.64 billion in 2012. So it’s no surprise that its one-year, two-year and five-year share price trends are all bullish.
Year to date, it’s up 41%.
With the profitable holiday season still to come, Comcast – and its Hollywood competitors – should continue seeing their intake and their stock tick upward.
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