Analyst Eyes Lionsgate Stock Price Upside With Starz Spin-Off

Lionsgate could see its stock price surge 50% following the spin-off of its Starz digital media brand, and ongoing content production for third-party distributors, according to a Wall Street analyst.

Last November, Lionsgate disclosed it would entertain spinning off the Starz unit as a standalone publicly held company. Starz, which has more than 18 million subscribers across multiple branded streaming platforms worldwide, including StarzPlay Arabia, is currently headed by Jeffrey Hirsch.

Writing in a Jan. 4 note, Wells Fargo analyst Steven Cahall said Lionsgate’s shares could reach $25 valuation if it concentrates its “pickaxes” on the current “gold rush for content” within the media landscape as streaming services compete with legacy distribution platforms such as linear TV on original programming to attract subscriber eyeballs.

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“One thing we learned on our recent ‘LA Bus Tour’ is that the demand for content continues to increase,” Cahall wrote. “Independent studios like Sony Pictures, Lionsgate, Skydance, A24, Hello Sunshine, and various others are in a great position to sell the pickaxes during this gold rush.”

Specifically, Cahall contends Lionsgate can piggyback on the combined $100 billion content production frenzy media giants such as Netflix, Disney, WarnerMedia, ViacomCBS, Apple and Amazon Studios will spend this year producing shows and movies.

The analyst cites Lionsgate’s licensing of the “Mad Men” franchise across multiple streaming platforms as an “all-time [industry] high” within the syndicated content market.

Revenue from Lionsgate’s 17,000-title film and television library totaled a record $784 million for the trailing 12 months through the last fiscal quarter (ended Sept. 30, 2021). The Santa Monica, Calif.-based studio/distributor completed the acquisition of the 200-title Spyglass Media Group library in the quarter.

Last year, Lionsgate released slavery drama Antebellum, starring Janelle Monae, actioner The Protégé, co-starring Maggie Q, Samuel L. Jackson and Michael Keaton, and Barb and Star Go to Vista Del Mar, a comedy co-starring Kristen Wiig and Annie Mumolo, all on premium VOD.

“We foresee Lionsgate’s content studios making more shows and more movies,” Cahall wrote. “We think ‘profit ultimates’ are being written up as downstream movie rights can be pre-sold, while PVOD lowers the cost structure for middle-budget film releases.”

Wells Fargo Puts Brakes on Disney Stock, Cites Sluggish Content, Streaming Sub Growth

Investment bank Wells Fargo Nov. 22 lowered its Disney share price valuation less than 5% following the media giant’s sluggish streaming video subscriber growth in the most-recent fiscal period.

Wells Fargo analyst Steven Cahall lowered Disney’s share price target to $196 from $203, citing two factors. First was a 2 million Disney+ sub gain, which was less than 50% of company estimates. While the SOVD added 4.4 million gross subs in the quarter, it lost 2.4 million subs in India through its Hotstar subsidiary acquired through the 20th Century Fox deal. India accounts for 37% of all Disney+ subs.

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In addition, Cahall said the pandemic continues to undercut Disney’s ability to generate content. The recent Disney+ Day saw a handful of announcements for new series such as “Agatha: House of Harkness” and “Spider-Man: Freshman Year,” and behind-the-scenes DVD features, among others, delivered via social media instead of official presentation by company executives.

“Our work indicates that the slowing content machine was the culprit, and our cohort analysis of organic core net adds (i.e. Hotstar) supports subs re-accelerating with content amortization increasing,” Cahall wrote in a note.

The analyst believes Disney’s direct-to-consumer business, which topped 179 million subs across Disney+, ESPN+, Hulu and Hulu + Live TV, is valued at $165 billion, including $135 billion for Disney+. That’s about $150 billion less in valuation than rival Netflix — which added 4.4 million subs in its fiscal quarter.

Analyst: Disney+ to Add 6 Million Streaming Subs in India

Disney has generated more than 26.5 million subscribers for its branded Disney+ streaming service in the United States, Canada, the Netherlands, Australia and New Zealand.

With the platform launching in the United Kingdom, Germany, France, Italy and Spain on March 31, new data from Wells Fargo suggests the streaming service could get its biggest subscriber boost in India.

That’s because as part of Disney’s $71 billion acquisition of select 21st Century Fox assets, Disney owns Star India, a Mumbai-based media company with dozens of sports and entertainment channels, including over-the-top video platform Hotstar with a reported 100+ million users.

Wells Fargo analyst Steven Cahall contends the scenario could help Disney+ generate six million subscribers after bowing in the second most-populous country in the world.

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The analyst believes Disney won’t make a lot of money per subscriber (from $2 monthly), but that the total addressable market portends a lucrative situation.

Cahall eyes a “big untapped TAM opportunity” for Disney+ in India, with subs increasing to 10 million by the end of fiscal 2021 and 12 million by the end of 2022.

F.Y.E. Parent Delays 10K Fiscal Report Filing, Cites Business Operation Concerns

The corporate parent of home entertainment retailer f.y.e. (For Your Entertainment) May 6 disclosed it has sought a delay in its 10K fiscal-year filing (ended Feb. 2) with the Securities and Exchange Commission (SEC).

In the filing, Trans World Entertainment Corp. said the delay from May 3 to May 20 was due in part to apprehensions by its accounting firm (KMPG) about the company’s ability to “continue as a going concern.”

The company ended the fiscal period with just $4.3 million in cash – down from more than $31 million a year ago.

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The company’s shares, which closed at 34 cents per share, are on notice of being delisted by Nasdaq for failing to meet the trading board’s $1-per-share minimum threshold.

New York-based TWEC operates more than 200 mall-based f.y.e. home entertainment retail stores – down from 540 stores in 2010.

The chain saw store revenue drop 15% to $78.8 million from $92.4 million in the previous-year period. Operating losses narrowed to $1 million from a $2.4 million during the previous-year period.

Store revenue declined 14% to $231.2 million from $268.3 million during the previous-year period.

To offset ongoing declines in packaged media sales, including DVD/Blu-ray Disc movies and music CDs, f.y.e has pushed trend items such as collectibles, action figures, posters, T-shirts and related merchandise.

Meanwhile, Spokane, Wash.-based e-commerce middleman Etailz.com, which Trans World acquired in 2016 for $75 million, reported a $62 million loss from operations.

 

Trans World Entertainment Amends Credit Facility Regarding F.Y.E. Store Closures

Trans World Entertainment, parent of the f.y.e. (For Your Entertainment) home entertainment retail chain, Nov. 1 announced an amended agreement with Wells Fargo regarding its five-year, $75 million revolving credit facility.

Specifically, TWEC agreed to receive written consent from Wells Fargo prior to closing additional f.y.e. store locations. The company said closures would not exceed 35 locations, or 68 stores in aggregate through the end of the fiscal year (Feb. 2, 2019).

The agreement provides that any store closures from the signing of the amended agreement until the end of the fiscal year shall be made in accordance with liquidators or liquidation consultants “reasonably” acceptable to Wells Fargo.

Mall-based f.y.e. posted an operating loss of $6.6 million in its most-recent fiscal period operating 241 stores. Revenue dropped 15% to $104.6 million from $123.9 million.