The name IMAX stands for (short for Image MAXimum ), IMAX is the indisputable leader in large format projection and 3D movie experience around the world, the company, originally from Canada have struggle for years to make profits and interest investors… until now. There are so many reasons why I believe the story will be different now, the industry has changed, IMAX completely modified its business model and digital projection seems to be finally affordable and easy to implement.
Currently the IMAX stock trades at $9,30 and it doesn’t have a P/E ratio yet since last fiscal year ended up with loses (as the previous ones as well).
Why the story is different now… this is what i believe:
IMAX is now commercial
IMAX use to be a great company but focused just on institutional clients, not long ago most of the theaters on the IMAX network were placed on Museums and other institutional sites of general interest, but it was never commercial as it is today. Currently 200 new commercial IMAX theaters are under construction around the world and for the first time in years IMAX will have more commercial theaters than institutional. On 2007 IMAX accounted for 299 theaters and 186 on signed for implementation and construction, in 2008 IMAX theaters accounted for 351 and 213 signed for implementation and construction, This year the company will have more than 400 theaters in operation, out of these more than 400 theaters close that 300 will be commercial against just 120 institutional, no long ago numbers were exactly the opposite where more institutional theaters were in place. The best part of this is that IMAX is participating now from the box office instead charging clients upfront for the installation of large format screen, sound system and digital projection; this means that in the long run IMAX will start to have a residual steady income from every movie release, something that wasn’t happening before.
IMAX entered the Digital Projection Business
This change is part of the new business model of IMAX, in 2008 IMAX introduced “Digital Projection Systems” that doesn’t required platters anymore (for celluloid IMAX films); this change along have saved studios hundreds of thousands of dollars, the savings as a result of eliminating film prints are huge: the typical cost of an IMAX film print ranges from $20.000 per 2D print to $45.000 per 3D print; by removing these costs, the profit of IMAX release movies will significantly improve for Hollywood studios, this will be an important incentive for them to release their films on IMAX technology and theaters.
Digital projection offers more flexibility; so one movie can be easily replace for another at any given moment. Relatively small hard drives with digital movies replaced the 250-to-500 pounds of celluloid IMAX used before; movies can just now be removed temporarily to project an sport event or concert on the same venue; with film prints the process of set up and remove a movie with this flexibility was just a dream. As part of this game IMAX also developed a new technology in 2002 that allow 35mm live action films to be digitally transformed into IMAX’s large-format at a cost of roughly $1 – $1.5 million per film. This creation has allowed IMAX to retain 10% to 15% from the box office on those films. IMAX is also leasing digital projection systems to other theaters that are upgrading to digital, that’s also a new income source for the company that didn’t exist before.
IMAX in now profitable
Over the past three years IMAX was loosing money every single year, but last August 6th things changed dramatically, IMAX reported net income of $2.6 million, or $0.05 per diluted share for the second quarter ended June 30, 2009, compared to a net loss of $12.2 million, or $0.29 per diluted share for the second quarter of 2008. Total revenues increased 94% to $41.0 million, compared to total revenues of $21.2 million last year. The Company generated operating income of $6.5 million, a turnaround of over $14.0 million compared to an operating loss of $7.7 million in the year-ago period. These numbers clearly speak for themselves, there is no way the company will generate looses from now on, the new business model have change this company’s future at least for a decent period of time… being conservative if the company revenue grows by 15% over the next five years we can expect a P/E Ratio on the range of 15 or 20; that said the stock will be easily priced over $15 but in reality most likely close to $20, that’s twice the price is being trade today of 9,30. In other words for every dollar invested today in IMAX you will probably make two by the end of 2010.
IMAX partnerships with large movie studios to release new films
IMAX “know how”, film technology including digital cameras, and projection technology has allow them to partner with movie studios and produce great movies that have became incredible successful, these partnerships include studios overseas as well such as the recent agreement with Huayi Brothers Media Group, the largest movie studio in China just few months ago. These agreements have opened the door of IMAX to new business opportunities, IMAX will became an active participant on the movie production itself and will profit from the post-commercialization of the license merchandise.
The 3D industry has a momentum
We can say Hollywood is 3D ready, big productions houses have decided to go all the way 3D such as DreamWorks, when in 2007 its CEO Jeffrey Katzenberg said that he wanted to do all the films in 3D, and the first of those has been released this year as “Monsters vs. Aliens”. Other studios has been join the trend producing all their movies 3D such as Pixar (UP) or Blue Sky Studios (Ice Age). It is also being said that the “Avatar” movie of James Cameron will change the 3D industry cinema forever, it would be the first fully 3D immersible movie ever made since will not use a “Dynamic Floating Window” as similar 3D movies made on the past, in other words for the first time you will fell that you are within the movie and not watching the movie… amazing ahh?, here you can find a pretty cool “plain vanilla” explanation about Dynamic Floating Windows.
Not just movie production houses are making great movies for 3D now but also the technology is there, cameras are small enough to film in tight spaces, projectors and screens are affordable and technologically proofed, i believe the market is finally ready for it.
All the analysis of what is happening on this industry makes me think that IMAX will became a big player on the movie entertainment industry, so if you have not considered yet… take a look at the stock and go ahead… make a safe investment for 2010.
All my articles are based on value investing advice. If you enjoyed this post, please consider joining my mailing list below. NO SPAM, NO DATA SHARING. You can also follow me at Covestor where you can replicate my trades and track the performance of my model portfolio against the S&P 500.