‘Divergent’ Debut Sends Lionsgate Stock Sliding, What's Behind the Fall

'Divergent' Debut Sends Lionsgate Stock Sliding, What's Behind the Fall

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.”

Also read: ‘The Twivergent Games: The Saga: Bloody Dawn – Part 1' Trailer: The Hottest YA Couples Prepare for Battle (Video)

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.

Also read: ‘Divergent’ Debuts to $4.9 Million, Lionsgate Greenlights ‘Insurgent’

“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.”

Also read: How ‘Divergent's’ Shailene Woodley Used a Survivalist Weekend to Become Tris

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:

 

  • rizzo51

    What accounts for the stock fall? Um, two things: 1) Institutional investors and hedge funds looking to make a quick buck who have their own opinions about what constitutes success or failure, unrelated to reality; and 2) analysts who rarely know anything about any companies they supposedly analyze. The movie will do just fine, Lionsgate will be just fine, and it would be SO much better for all of us if we stopped paying attention to all this Wall Street nonsense.

  • Yes on AB1839

    Divergent shot in Chicago and now Georgia. California loses more work. Vote yes on AB 1839. Call Sacramento or pack up and move to Georgia.

  • Seannie5

    It should be noted that Twilight had a 70 million opening weekend (on a very conservative budget of 37m) without the massive hype that Hunger Games and Divergent had from social media. I have no doubt if Twilight was opening how, with how hardcore people were about it, it would have made much more. The Twilight craze only stepped into overdrive after the first movie came out so it wasn't front loaded like Divergent will be. Twilight's appeal is firmly aimed at women unlike Hunger Games and Divergent which bumped up the action to be a four quadrant movie.
    Twilight was very much untouchable. Bad reviews, ridiculous backlash, 5 movies and the success was maintained throughout. It rarely gets credit because critics like to dismiss it but one thing they can never dismiss is the box office and loyal fanbase.