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Media Industry Stocks Poised For Growth

June 26, 2014 | About:
shash63

shash63

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The U.S. media and entertainment industry is expected to reach $632 billion in 2017, up from $479.23 billion in 2012. Technological developments, film popularity, and rising individual income level are all fueling industry growth. In this article, two companies from the industry are adopting various strategies like screen expansion, and technology updates to keep pace with the growth. Let’s discuss them in detail.

Lions Gate Entertainment (LGF) diversified its TV production business into high growth potential businesses by delivering content to broadcast networks and digital platforms. The demand for digital content is rising with the increase in user of laptops, smart phones, and tablets. It will now produce series for broadcast networks and digital players in addition to cable networks.

For this, it established a relationship with Netflix for streaming the debut of ‘Orange is the New Black.’ The company is also making a comedy series for Hulu and Amazon. It will receive higher licensing fees on these series compared to series sold to cable networks.

International Motion Picture segment revenue (excluding Lionsgate U.K.) increased 7% to a record $397.1 million in the fiscal year driven by the stellar international box office performances of The Hunger Games: Catching Fire, Now You See Me, Red 2 and Escape Plan and strong carryover performance from the prior year release of The Twilight Saga: Breaking Dawn – Part II.

Revenue for the Television Production segment increased 18% to a record $447.4 million in the fiscal year with strong gains in both domestic and international television. Domestic television deliveries in the fiscal year totaled 176 episodes and 122 hours of television content, including Seasons 1 and 2 of Orange is the New Black, Seasons 1 and 2 of Nashville, Seasons 6 and 7 of Mad Men, Season 6 of Nurse Jackie and Anger Management.

The company also tied up with Kaban, to develop mobile games for hit movies. The game will be developed in Kaban's China studio, the same place where the hit movie based game The Hobbit: Kingdoms of Middle-Earth was created and went on to generate more than $100 million in revenue during its first year.

The company also safeguards an investors’ interest by revising its share repurchase programs, since the December 17, 2013 increase in its share repurchase authorization to $300 million, it has repurchased a total of 3,436,017 common shares for an aggregate price of $90.5 million.

Cinemark Holdings(CNK) has good growth prospects in its international segment due to increasing mall development and improving infrastructure. It has international presence in Latin America and is the largest theater chain with 169 theaters and 1,343 screens in 13 countries. The company has also announced that they are showing live broadcasts of select 2014 World Cup matches in several Cinemark locations across Latin America. This will, always have positive impact on revenue of the company in the upcoming quarterly results.

The company is focusing on screen expansion plans. As of March 31, 2014, Cinemark operated 486 theatres with 5,595 screens and had commitments to open 15 new theatres with 132 screens during the remainder of 2014 and ten additional new theatres with 107 screens subsequent to 2014.

The company’s free cash flow will significantly increase next year due to reduction in spending. However, this year capital expenditure will increase as a result of international digital projector conversion, higher new screen growth, and conversion of existing theaters with XD format.

The company recorded quarterly revenue growth of 10% year-over-year. Consensus of analyst estimates, the total revenue for fiscal 2014 to be $2.74 billion and $2.95 billion next fiscal year. This depicts a growth in the coming quarters and fiscal year for the company.

Conclusion

The companies in the media and entertainment industry will witness growth through new releases, technological advancements, and expansion initiatives. Lions Gate Entertainment’s expansion of its TV production business and the release of new films will drive the revenue. Cinemark’s International expansion with new screens and significant spending reduction in 2014, after the hike this year due various technology updates, provides better future prospects. Regal Entertainment’s acquisition of Hollywood Theaters will boost earnings and debt refinancing will result in lower interest expense. I recommend buying all of these stocks.


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