Irrational expectations are clouding strong box office results
Lionsgate's stock tumbled about 6 percent Friday afternoon even after “Divergent” received an enthusiastic response at the box office and the studio announced it had greenlit a sequel to the futuristic thriller.
“I'm scratching my head,” James Marsh, an entertainment and media analyst with Piper Jaffray, said. ”I don't understand what the big deal is. It's clearly going to be a real franchise for the company and it will help fill the pipeline after ‘Hunger Games’ wraps up.”
“Divergent” racked up an impressive $4.9 million in late night showings Thursday and is on pace to gross more than $50 million this weekend. Yet investors seem disappointed those figures cannot match or at least nip at the heels of the debuts of two other young adult blockbusters, “Twilight” and “The Hunger Games.”
Even before Lionsgate unveiled its initial box office numbers, the markets were skittish. Initial reviews for the film were poor, sending the studio's share price southward. The stock opened the week trading above $32 and was selling for $28.06 as of Friday afternoon. That's a painful reception.
The film seems to be a victim of unrealistic expectations and a healthy dollop of irrational exuberance by investors who falsely believe that all young adult series are created equal. Compounding that misapprehension, were fan sites and publications that kept talking up “Divergent” as a possible successor to “The Hunger Games.”
Those kinds of comparisons ignore the fact that “The Hunger Games” wasn't just a hit, it was a phenomenon. On its own merits, “Divergent” is still a nice addition to Lionsgate's balance sheet. Filmed for a relatively economical $80 million, it should make at least $150 million domestically and will perform respectably abroad thanks to an international fan base of the Veronica Roth novels that inspired the film.
Those figures are all the more impressive given that prior to “The Hunger Games” and Lionsgate's acquisition of the “Twilight” franchise with its 2012 merger with Summit, the studio's releases grossed an average of $35 million.
It also shows that the lessons of “The Hunger Games” and “Twilight” can be applied to other films — namely how to identify and develop properties that appeal to teenage moviegoers. Other studios have certainly failed in that regard. Just ask the makers of “Beautiful Creatures” or “The Mortal Instruments” how easy it is to find the next tween blockbuster.
“They've done an amazing job of essentially building a studio from scratch,” Matthew Harrigan, a media analyst with Wunderlich Securities, said. “I'm surprised the stock has drifted downward.”
Harrigan said that Lionsgate's share price is under pressure from lofty box office expectations for “Divergent” and also the disappointing ratings of “Saint George.” The George Lopez vehicle has an interesting model. Lionsgate worked out a deal with FX that will see the network order 90 episodes of the freshman series if its first 10 installments reach a certain ratings threshold. That may not happen given audiences’ cool embrace of “Saint George.”
Lionsgate is no stranger to having its share price skid on the opening weekend of one of its films. Its stock endured a similar pummeling when “The Hunger Games: Catching Fire” opened to a massive $161.1 million domestically. Some analysts had expected a larger figure at the time and the studio's share prices slid 10 percent. Despite the markets’ reaction, “Catching Fire” became the top grossing domestic release last year, earning $424.4 million stateside.
Whether Lionsgate's stock hit originated from its big or small screen business, the studio has lined up a stream of sequels and young adult adaptations that could help it achieve its ambitions of becoming one of the dominant players in Hollywood. There are two more “Hunger Games” sequels waiting to be released, a follow-up to “Now You See Me” in the wings and the fantasy adventure “Gods of Egypt” on the horizon.
“The theatrical side has never looked better,” Marsh said. “They're chock full of potential hits.”
Watch TheWrap's first original trailer for The Twivergent Games: