Did anyone see this coming? Honestly, I didn't think that Time Warner's (NYSE: TWX) Four Christmases, starring Vince Vaughn and Reese Witherspoon, would be the number-one movie over the five-day Thanksgiving time period. According to preliminary data at Boxofficemojo, the holiday flick took in more than $46 million at domestic theaters for the Wednesday-through-Sunday frame. I've seen the ad campaign for Christmases, and I have no intention of taking in a screening of it. I guess it was the right product at the right time.
Summit Entertainment's Twilight came in second with $39 million. Considering how hyped up this one was, and how much of an ardent following it seems to possess, frankly, I'm surprised. Where were all the teens to push this to the top of the heap? They were certainly available to pack the theaters. And those who saw it during its debut weekend had ample opportunity to engage a repeat viewing or two. Still, at a reported budget of about $37 million, the project should be profitable for Summit Entertainment (I wish I knew how much was being spent on marketing, though). It's total take so far is approaching $120 million.
Bolt from Disney (NYSE: DIS) was third with $36 million. So far, its total gross stands at almost $67 million. I'm disappointed that the cartoon isn't closer to $100 million by now. I mean, this is the Disney brand we're talking about. Plus, Bolt could be considered a test of both John Lasseter's hit-making skill and of the value of the Pixar purchase (as I alluded to in a previous piece). I expected more from this one, and I'm sure Disney execs were counting on a higher gross by this point as well (no matter what they will say in public).
On Saturday of this past weekend, I was discussing the domestic box-office potential of Summit Entertainment's Twilight with a friend of mine (we didn't discuss the ranking potential since one didn't need to be a clairvoyant to see a first-place showing in the film's immediate future).
I initially proffered a $100 million take in terms of a prediction, but then backed down and decided that $80 million might be more like it. I wasn't sure if Twilight, even with all its hype, could possibly propel itself to a number that was recorded in three digits. Well, in an overall sense, I was completely wrong. Although the movie didn't make $100 million, I still obviously thought that it was stronger than it turned out to be.
According to published estimates from Boxofficemojo at the time of this writing (final numbers are due later), Twilight pulled in around $70 million. Don't get me wrong, that's a big take, and the movie did beat Sony's (NYSE: SNE) Quantum of Solace, which came in second. But, according to the daily estimates, the Friday-through-Sunday numbers show a decidedly negative trend.
It's interesting, too, because when I saw the $35 million Friday figure, I really thought that something higher than $70 million would be the end result. On Saturday, however, Twilight's take dropped over 40% when compared to its opening day, and on Sunday, the drop was almost 35% compared to Saturday.
GameStop (NYSE: GME) didn't have a great third quarter. Total sales increased by slightly higher than 5%. On a GAAP basis, earnings dropped three pennies to $0.28 per share. If you exclude items such as debt extinguishment and foreign currency effects, then adjusted earnings per share on a diluted basis increased 19% to $0.38.
The bottom line may have increased by double digits by GameStop's calculation, but there are a couple reasons not to be too impressed by the performance. First, management missed the analyst's call by three pennies (this particular source is using $0.34 as an adjusted number, and comparing it to the expectation of $0.37). Second, and of higher importance to me, same-store sales decreased 1.8% during the quarter.
Now, it is true that the video-game retailer was cycling off a dramatic 46.3% increase in comps in the year-ago period, an expansion that was driven by Microsoft's (NASDAQ: MSFT) incredible Halo 3 phenomenon. I realize it was a difficult comparison. But there's no way that an investor can't be disappointed by that figure. The difference between positive 46.3% and negative 1.8% is rather sizable; I think management should have tried a little harder to deliver a number on the positive side of things at the very least.
I think we all knew which film would come out on top this past weekend. Sony's (NYSE: SNE) new James Bond adventure, Quantum of Solace, grossed an estimated $70 million at domestic theaters over the last three days according to Boxofficemojo. Excellent showing, Jimbo. As far as I'm concerned, though, I think you have to give the number-two film even more credit.
DreamWorks Animation (NYSE: DWA) and its distributor, Viacom (NYSE: VIA), need to be given major kudos for their work on Madagascar: Escape 2 Africa. The first Madagascar took in about $193 million in total at the domestic box office back in 2005. It was released during the summertime. The sequel is definitely going to hit $200 million. This past weekend it took in roughly $36 million, and its total stands at approximately $118 million. With the Thanksgiving holiday still to come, I figure there will be plenty of business for DreamWorks Animation's cartoon.
The wild card here is Disney's (NYSE: DIS) Bolt project. That one will do well, judging by the commercials I've seen so far. How much thunder will it steal from the second Madagascar when it is released this Friday? A lot, I think. Still, I'll keep to my $200 million prediction. I believe there will be enough discretionary dollars left for both cartoons.
The month of October was good to the Nintendo (OTC BB: NTDOY) Wii console. Actually, every month seems to be good to the Wii console. According to the latest sales figures, the Wii sold over 800,000 units during the Halloween season. Nothing scary about that.
Of course, Sony (NYSE: SNE) probably was a little spooked. The company's PlayStation 3 system came in a distant third to the Wii. Microsoft (NASDAQ: MSFT) probably felt all right. The Xbox 360 came in second place, fueled by a recent price cut. Believe it or not, you can actually get a video game system for less money than it costs to acquire a Wii. The Xbox 360 version without a hard drive goes for $199. Still, people are willing to pay a premium for casual gaming.
After I got through checking out the hardware sales, I wanted to see how software had performed last month over at Gamespot. I have to admit, I was pretty shocked to learn of the "conspicuously absent" Guitar Hero World Tour game. That bugged me because one of the prime reasons I own shares of Activision Blizzard (NASDAQ: ATVI) is the Guitar Hero franchise. However, one thing to keep in mind is that the title still has time to chart. It was released the last week of October, so perhaps the November rankings will be kind to it. Also, the new Call of Duty war adventure hit the street this week. Anecdotally, I know there's a lot of interest in that game.
The good news was that the company narrowed its loss compared to last year's results. Lions Gate booked a net loss of $0.41 per share this year versus a net loss of $0.49 per share in the year-ago period. The bad news, however, is that the results did not meet expectations. I mean, they really didn't meet expectations, as the call was for a loss of $0.15 per share. That's just how the movie business goes sometimes.
However, let's look at the cash flow, because we can find some comfort there. Operational cash flow for the quarter was positive this year instead of being negative, and free cash flow, which is the ultimate goal of any business, increased over three times to nearly $74 million.
And I'll steer you to another positive statistic -- filmed entertainment backlog increased to what management is calling a record $456.5 million. I know, I also tend to dismiss terms like "record" when I see them in a press release, but at least in this case it refers to revenues that will ultimately be recognized down the line.
Activision Blizzard (NASDAQ: ATVI), which competes with Electronic Arts (NASDAQ: ERTS) and THQ (NASDAQ: THQI), did all right in the third quarter. The publisher reported adjusted earnings per share of $0.07. That was two cents better than what analysts were counting on. As a shareholder of the company, I was pleased to see that. I was also pleased that a $1 billion stock buyback was announced.
However, I wasn't so pleased by the cautious tone of CEO Bobby Kotick. You can tell he thinks the recession may put a damper on all the rockin' fun that Activision Blizzard is having with its Guitar Hero franchise. Indeed, the market is pricing in the risk of owning Activision Blizzard shares these days.
Before, I was used to what seemed like a constant capital appreciation of my position. Now, that feeling is gone, as the stock has been struggling. The stock, in fact, was near a 52-week low at the close of trading on Wednesday. That doesn't feel right, does it? Activision Blizzard should still sell a lot of software for the Sony (NYSE: SNE) PlayStation 3, the Microsoft (NASDAQ: MSFT) Xbox 360, and the Nintendo (OTC: NTDOY) Wii platforms. Not only is the new Guitar Hero making waves, but a fresh version of Call of Duty is forthcoming.
News Corp. (NYSE: NWS), whose competitors include CBS (NYSE: CBS), Disney (NYSE: DIS), Time Warner (NYSE: TWX), General Electric's (NYSE: GE) NBC Universal, Sony (NYSE: SNE), and Viacom (NYSE: VIA), reported earnings for the fiscal first quarter on Wednesday after the market closed. The stock was down over 11% in the after-hours trading session.
What happened? Do you really need to ask? Hard times beget hard guidance, my friends. CEO Rupert Murdoch is trying to be honest with his shareholders. News Corp. is bracing for a slowdown in advertising and DVD sales. And as for the bottom line, the media conglomerate didn't beat estimates with its Q1 net income of $0.20 per share. Wall Street was looking for three more pennies.
Revenue increased 6%, at least. However, according to the press release, one of my favorite metrics dipped severely during Q1. Granted, this is only the first quarter, but net cash from operations took a hideous plunge of 70%. I'm sure Murdoch didn't like seeing that. One thing I hope he takes very seriously is the need to cut costs. He stated that this will be a priority.
Get ready, Mouse fans. Disney (NYSE: DIS) will be letting Wall Street know this Thursday if its fourth quarter was a good one or not. A lot of eyes will be on the company. Shareholders will want to know the outlook for the theme parks and how the advertising marketplace is treating the company's media holdings. So far, things haven't been too bad at Disney, but many on Wall Street are expecting the recession is to catch up to the company. I expect this myself. So I'll be perusing the conference-call transcript for such items as guest spending at the parks and the quality of the scatter advertising market at ABC. I'll also be keeping my eye out for comments about the consumer-products segment and the company's investments in the video-game division. Disney is spending a lot on the latter, and I think shareholders need to have an idea of how the portfolio of games to be released during the holiday season is expected to perform. In terms of the former, I want to know if the Disney brand is working its magic in the retail channels.
In terms of the bottom line, Earnings.com says that income should be about $0.49 per share. That would represent growth of roughly 17%. I'd be happy with that double-digit number. And I'm pretty sure that estimates will be beat by a penny or two, knowing the company's reputation. But as a shareholder, I tend to be more interested in the cash-flow statement. I like to see how much free cash has been generated, and how the company is using it. In fact, we'll get the cash-flow number for the last twelve months this Thursday. I'll want to see how many shares have been repurchased, and I'll be interested in attempting to gauge what the next dividend increase is likely to be. Disney likes to take shares back as a way of rewarding shareholders, but management really needs to do a better job with the dividend, as I think it could be higher. I would expect that Disney will deliver a decent cash-flow statement.
And how are the Disney Channel franchises faring? Is Hannah Montana wearing out her welcome? Somehow, I don't think that will be the case; someday soon, sure, but not just now. And will the next High School Musical movie be released on the big screen with a new cast? I would appreciate one of the analysts out there inquiring about that. The whole Disney-Channel-incubator thing has been a powerful force for both the company and the brand, and I'm sure CEO Bob Iger will be crowing about it. But I'd love to know what his spreadsheets are saying about the longevity at this point for the current franchises. Will Disney know when it's time to sell out of one fad and invest in another? For that matter, how are the Jonas Brothers doing? We do hear about them, but they don't have the same iconic value of a Miley Cyrus, do they? They don't to me, at least, but maybe I'm just out of the loop. Iger should explain what plans the company has to turn them into the next truly big thing.
Viacom (NYSE: VIA), a media business that competes with Disney (NYSE: DIS), Time Warner (NYSE: TWX), News Corp. (NYSE: NWS), General Electric's (NYSE: GE) NBC Universal, and Sony (NYSE: SNE), doesn't have a lot to brag about in its third quarter. Revenue went up only 4%. Adjusted earnings fell 15% to $0.55, beating expecations by a penny. But I doubt that's much comfort in this particular case, considering that operating income at the company's media networks division dipped 4%, and an operating loss was reported for the studio division due to difficult comparisons (i.e., Transformers helped the year-ago quarter).
Like clockwork, Executive Chairman Sumner Redstone praised Viacom's content and fully supported CEO Philippe Dauman. Maybe Redstone should take a strong look at Viacom and sit the CEO down and have a serious discussion with him about the realities of entertainment programming. Right now, MTV is suffering from ratings challenges. Dauman has to step up his game in this regard.
I mean, come on, MTV is a powerful brand with the youth, and he needs to lean on the folks running it to work harder and become more innovative and creative. I will say that I liked that the earnings release mentioned a desire to engage better cost controls at its studio division. Paramount definitely needs to lower overhead expenses. Hollywood likes to spend money; shareholders most certainly do not. So I think Redstone should aggressively make this clear to Dauman.
Electronic Arts (NASDAQ: ERTS) did not have a good second quarter. According to preliminary results, the publisher is looking at an adjusted loss of 6 cents per diluted share; this compares unfavorably to a profit of 27 cents per diluted share in the year-ago period. Wait, did I just say unfavorably? I meant very unfavorably. EA merely met Wall Street's expectations.
Non-GAAP revenues, however, increased 20%, and cash flow from operations for the trailing twelve months rose over 50% (cash was used, however, for operations during the quarter). But shares were down in the after-hours session over 15% at one point. The market was reacting to the cautious outlook from management and comments about a slowing retail environment. Furthermore, EA needs to reduce its costs. The company is eliminating about 6% of its workforce. While Wall Street traditionally looks upon job cuts as a sign that management is taking steps to improve its operations, I think, in this case, shareholders will look upon the cuts as a sign that EA is floundering.
Can you imagine this? Shouldn't EA be doing an incredible job of maximizing shareholder value by taking its incredible pipeline of intellectual properties and monetizing it via the next-generation platforms provided by Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT) and Nintendo (OTC: NTDOY)? It should, but it's not. The publisher has sold millions of copies of high-profile titles such as Madden NFL 09 and Spore, but again, those costs and expenses are getting out of hand.
Nintendo (OTC: NTDOY), which battles it out with Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) in the console wars, has two huge assets to its name: the Wii gaming system and the handheld Nintendo DS. Both of those products are powerhouses and have incredible brand equities. They drive earnings results. I think they're pretty neat, too. However, Nintendo may find itself having a little bit of trouble, at least in the short term, due to a currency issue.
According to this article, Nintendo saw its top line for its fiscal first half expand by 17%. The company's net profit rose over 9%. The Wii console sure is making toast of the PlayStation 3 and the Xbox 360. And both the Wii and DS should sell well during the holiday season. But, the article I cited mentioned a sobering fact: the yen has strengthened. Because of this, Nintendo's bottom line might not grow as much as previously expected. Of course, currencies are volatile instruments at times, and considering the financial chaos we're currently experiencing, who knows where the yen will be in the coming months. It seems clear, though, that there is currency risk here.
So, where does this leave investors? Well, Nintendo's ADR's are priced, as of this writing, at $39.53. The 52-week low is $32 and the 52-week high is $78.50. Do I want to buy Nintendo now? No. With market fluctuations, a looming global recession, and this reported currency element, I think smart investors would wait for a pullback. I am bullish on Nintendo as a long-term play on video games. It has a great portfolio of intellectual properties. Now, however, may not be the time to start a position. If it goes back to the 52-week low, that could be the time to look, as it might offer a higher margin of safety.
Disclosure: I don't own any company mentioned; positions can change at any time.
Cable entity Comcast (NASDAQ: CMCSA) had a kicking third quarter. A look through the press release shows a string of double-digit growth rates. Can't complain about that in a distressed economic period. Revenues, operating cash flow, and free cash flow really shined. Adjusted earnings per share increased 33% to $0.24.
According to this article, the bottom line beat expectations by two pennies. However, that article also contained a bit of a bearish take on Comcast's quarter from an analyst. I don't know, I thought Comcast did a decent job considering the recession. There's no question that the business will be affected by the slowdown and the bad housing market. I concede that. But, given that management is maintaining its outlook for revenue and operating cash flow growth, I just don't feel bearish on the stock from a longer-term perspective. And let's think about this. If digital content distribution is destined to be the wave of the future, won't Comcast be a major player in that wave? I would think it would be. Don't get me wrong, it has competition to contend with. You've got Verizon (NYSE: VZ) and its FiOS product, DISH Network (NASDAQ: DISH) and its satellite offerings, etc. Comcast and its Internet/phone services have had great success in terms of resonating with subscribers. The company is doing well, in my opinion, of building valuable brand equity for itself.
And keep in mind that content providers such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), Viacom (NYSE: VIA), and Sony (NYSE: SNE) will always find it to their advantage to work with Comcast on hatching new distribution avenues for content, a fact that will provide further growth opportunities for the cable company. As an example, Comcast, with partners Lions Gate Entertainment (NYSE: LGF) and Sony, is involved with the Fearnet horror channel. Yes, I would definitely say that Comcast is going to increase its reputation as a player in Hollywood. And that should be good for the stock.
Disclosure: I own Disney; positions can change at any time.
DreamWorks Animation (NYSE: DWA), the computer-cartoon studio that competes with the animation product of other entities such as Disney (NYSE: DIS), News Corp. (NYSE: NWS) and Sony (NYSE: SNE), posted Q3 results after the close on Tuesday. Revenues saw a modest decrease of almost 6%, coming in at $151.5 million. I am categorizing a 6% decrease as modest in this case because the studio had a Shrek sequel out in the previous year. The drop was expected. Net income was 41 cents per diluted share, a figure which includes a $0.03 tax benefit. Even so, DreamWorks Animation beat expectations. Wall Street was counting on only 32 cents per share.
Operational cash flow isn't faring too badly. It increased 9%, and the company seems to be doing well enough in terms of generating revenues from its portfolio of films. Kung Fu Panda helped to drive the quarter, but it isn't done yet, as the home-video release should affect Q4 in a most positive manner.
Now that the data is out, DreamWorks Animation is really readying itself for its next big test. Madagascar: Escape 2 Africa, the sequel to the hit Madagascar, is waiting in the wings. In fact, the wait is almost over. The film is due November 7, and the company needs to post big numbers on this one.
GameStop
Get ready, Mouse fans. 
Cable entity 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
