Bernstein: Lionsgate Is David In A Sea Of Goliaths

Competitive investment from several larger rivals and economies of scale in the entertainment sector have intensified the playing field for Lions Gate Entertainment Corp LGF, according to Bernstein.

The Analyst

Todd Juenger of Bernstein downgraded shares of Lionsgate from Outperform to Market-Perform and lowered the price target from $35 to $30.

The Thesis

In order to maintain upward growth, Lionsgate subsidiary Starz must compete for consumers with Netflix, Inc. NFLX Amazon.com, Inc. AMZN, Walt Disney Co DIS, Time Warner Inc TWX's HBO, Facebook, Inc. FB and Alphabet Inc GOOGL GOOG, all companies with more resources and capital, Juenger said in a Wednesday note. (See the analyst’s track record here.)

“Starz is competing for consumer attention in a world where Netflix is spending $12 billion (and growing), Amazon is spending $5 billion (and growing) and big companies like Apple, Facebook, and Google are spending, as an experiment, about $1 billion each," Juenger said.

“Nowadays, David is not just fighting one Goliath, he's fighting a gang of them, all at once.”

Additionally, most growth over the past two years has come from the motion picture segment, which grew at an “unsustainable” annual rate of around 32.5 percent, the analyst said.

Juenger is forecasting that this growth rate will decelerate and normalize at half of the current rate.