IMAX (NYSE:IMAX), which delivers an advanced viewing experience for movie theaters, beat analyst estimates for its fourth quarter, sparking a nearly 9% jump in IMAX stock. But revenue was still short of what it was a year ago, as was the number of new theaters installing the IMAX equipment.
For the quarter the company reported net income attributable to common stock of $1.67 million, or 3 cents per share, on revenue of $108.9 million. Adjusted net income per common share, however, was $16.4 million, or 26 cents. For the same period last year net income was $4.83 million, or 8 cents per share, and revenue was $125.56 million.
The stock jumped because earnings estimates were trimmed down, slowing the stock’s recovery from the fourth-quarter tech wreck. The company’s talk of a billion-dollar box office in 2019 brought in the optimists.
IMAX stock was due to open for trade February 22 at $23 per share, giving it a market cap of almost $1.5 billion.
The Rent’s Too High
IMAX theaters are expensive to build out, and it’s expensive to adapt movies to the format. There were 1,505 IMAX theaters around the world at the end of 2018, less than 10% more, some 1,370, open at the end of 2017.
The expense means that IMAX D-BOX tickets can cost $22 each. The D-BOX seat rocks, jerks and tilts during the movie, giving what IMAX calls a “4-D” experience.
Prices on standard IMAX seats, which remain stationary, are usually about $20, 60% more expensive than regular movie house seats, which now average $12.50 per ticket at major chains.
Along with the cost of converting a theater to IMAX, the supply of IMAX movies is limited and and few of them are hits. Spiderman: Into the Spide-Verse, an animated film from Sony (NYSE:SNE), is currently in re-release to IMAX a few weeks ahead of its DVD release, and last year’s Aquaman also gave IMAX a short boost. But such theatrical hits are increasingly rare as movie theaters lose talent to streaming platforms, like Netflix (NASDAQ:NFLX).
IMAX got its first hits from documentaries, and there are still some great ones being produced. A recent example is one on Apollo 11, based on 70mm film taken around the launch. When IMAX production meets a great property, the result is well worth seeing. But going to an IMAX theater still represents a major event, as the evening can cost a family of four more than $100, or about the current price of a share of IMAX stock for each seat.
Lacking growth, IMAX management focused on cost reduction last year, and this has generated positive results. It also resulted in some executive departures.
The IMAX earnings release expressed great hope for China, where the total box office came to $78 million but was 61% ahead of last year. If the company can rapidly grow its network of theaters there, in response to demand, it would be a huge boost. Management is predicting a “blockbuster year,” fueled by the Christmas-time release of Star Wars: Episode 9.
Bottom Line on IMAX Stock
IMAX is not about to go away completely, and the company is expecting 2019 growth in the mid-to-high single digits.
But IMAX stock is, at best, a slow-growth opportunity and a niche product in an industry, theatrical movies, that is slowly disappearing.
Not all movies are released to IMAX, and not all successful movies are successful with the format.
You may make some money trading IMAX stock around earnings volatility, but I wouldn’t invest in it, unless IMAX can find an affordable way to bring its technology into the home, and there’s no indication of that.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
