It may not be the most adventurous or art-forward strategy, but Lions Gate Entertainment's laser focus on young-adult franchise films has been an absolute home run. Starting years ago with its Twilight series -- and still winning from it on home video and TV sales of the films -- Lions Gate has since followed up with two smash-hit installments of The Hunger Games and just last week debuted what will likely be another winning YA-focused franchise, Divergent. These assets, while extremely costly in the short term, bear years of fruits for the company and, ultimately, investors. Here's why Lions Gate may be the best bet in entertainment.
Rinse and repeat
Twilight's first film chapter earned $70 million in its opening weekend -- a tremendous victory for what at the time was a shaky Lions Gate (and embattled by none other than Carl Icahn). That paled in comparison to its next young-adult debut, The Hunger Games, which scored more than $150 million in its opening weekend. Both became multibillion-dollar global sensations and have been largely responsible for sending Lions Gate stock up 90% in the past two years and 350% in three.
Last weekend, the company released a third adaptation of a bestselling teen novel, Divergent. It wasn't as big a splash as the first two (it wasn't expected to be), but the film delivered box-office results ahead of estimates with $56 million, nearly guaranteeing that the studio will move forward with additional installments.
If there is one near-sure bet in today's entertainment world, it's that a film that appeals to a majority female under-18 audience will pay back in spades for its backers. Divergent brought in 59% female moviegoers and earned high marks from the often finicky demographic.
Film studios and distributors are known to have their ups and downs, with good luck quickly turning to bad given the exorbitant costs of making mainstream films, but Lions Gate has insurance. Its two bulletproof franchises will continue to delight investors all on their own. The Hunger Games has more films to break box-office records, and Twilight is earning the company's TV segment a pretty penny. These assets have a relatively long shelf life, and increasingly so. As options for viewing grow, the opportunity to license these extremely valuable films behaves accordingly.
By the early looks of it, Lions Gate has a newborn franchise in its hands, and one that can similarly deliver results for years to come.
Sure, these titles may not cement Lions Gate as the arbiter of film as art, but it should make investors very happy. The company trades at 17 times forward earnings, which certainly isn't cheap, but with the wind at its back, Lions Gate should strongly appeal to investors interested in the space.
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The article Lions Gate Keeps the Wheels Turning originally appeared on Fool.com.
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