IMAX Corp (USA) (IMAX)

I'm long on IMAX. They have a good business model moving in to the chain theatres. They are offering the IMAX experience to more people than ever before. They need to focus on profit margins as they expand. In 3-5 years, this could be a stock that David and Tom are bragging about in all of their articles!

This account tracks the fast-growing shakers and movers and some of the riskier stocks on my watch list.

Building theaters at a fevered pitch. This company either saves the American Theater experience (as in physically going out to see a movie) or the theater industry fades away, losing out to on-demand or other in home options.

IMO the cpl extra bucks to see a blockbuster in imax is the only reason to go to a theater instead of watching from the comfort of your own home.

I've seen Dark Knight and Transformers in IMAX, two one of a kind experiences. If your going to see a blockbuster at a theater I dont see why you wouldnt spend the extra cpl bucks and do it right.

THEY

ARE

GOING

WORLD

WHIDE.$$$$$$$$$$$

Saw U2 3D on an IMAX. Best thing I have ever seen in a movie theater. Revolutionary experience. Betting Avatar will make a ton of money at IMAX.

Huge expansion in other countries and continuing expansion and popularity in the United States are my main reasons for the outperform prediction.

big big growth

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 the explanation:

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 (for celluloid IMAX films), just this change along have saved studios hundreds of thousands of dollars, the savings as a result of eliminating film prints are considerable as the typical cost of an IMAX film print ranges from $20.000 per 2D print to $45.000 per 3D print. Remove these cost will significantly increased the profit on an IMAX release for a Studio, which provides more incentive for studios to release their films to IMAX 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 theaters upgrading to digital, that’s also a new income source for the company.

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, I believe IMAX new game and business model is here to stay, there’s no way this company goes back anymore. If next year… being conservative the company revenue grows by 15% 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 will open the door to IMAX of a new business opportunities, IMAX will became an active participant on the movie production itself and will profit for the commercialization of the films.

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). 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 and specially it seems that finally the market is 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 go ahead… make a safe investment for 2010.

I had MVL and got the buyout, although DIS did get them cheap. Hoping DIS or another big entertainment player see the IMAX experience as the future and buys them as well.

It's a great product; but horrible margins, fluctuating earnings based on the whim of kid's interests, and negative book value (bleh!). Too many things have to change to justify over $9/share (sustained revenue growth, order of magnitude increase in margins, extra cash). Imax has alot of potential, but it's too dangerous right now.

They are emerging from a long period of bad decision-making. But their moves to revenue-sharing and digital projection will make all the difference going forward.

Fundamentals are aweful

a good movie theaters

IMAX is amazing, and as we are demanding more from our movie experience, I believe IMAX will continue to gain. Slowly it seems, but it will grow.

A lot of people, now have 50"+ 1080p HDTV's in their homes with VOD, and 5.1/7.1 Surround Sound. Why would you pay $10+ to go to a theatre, wait in line, and spend $100 on junk food when your living room can be the ultimate personal theatre?

IMAX steps it up. Usually a bigger screen, better picture, better sound, and definitely worth the money. I think that with all the great CGI movies coming out, IMAX, and IMAX 3D are definitely making going to the movies worth it again. A few dollars more, but more enjoyable.

We probably have a few more super hero movies to go through, another bond movie, some Pixar, and dreamworks stuff, and who knows another transformers or two.

It has to be on IMAX, if not people will wait for BluRay.

Irrational exuberance has sent the price of IMAX stock up way too high for its fundamentals. Negative profit margin, operating margin, return on assets, net income, even EBITDA and book value are negative. These are not signs of a healthy business.

As for the new theaters and movie deals, the fact is that there are are very few IMAX theaters. The new theaters that everyone is gushing about are not really IMAX theaters, they are existing standard-size movie theaters with their screens enlarged slightly, because you can't fit a real IMAX screen into a standard movie theater. So they are fake IMAX theaters, trading on the IMAX name to charge $5 extra to see a movie on a screen only slightly bigger. Guess how many repeat customers this will bring. Guess how much this will tarnish the IMAX name.

The are expanding their screens all over the world. People want to see the big block buster movies on those big screens, and are paying extra for it.
They have relatively few screens so lots of room for expansion.

They have a lot of new theaters opening

Am I missing something here? We have a firm that has been unprofitable over the past three years. They are provider of what is essentially a "luxury" theatre service. They have negative stockholders' equity and a good chunk of goodwill that even props up that figure a bit. They recently had to do a share offering to raise more capital. Even if they were to go back to 2005 levels of profitability and I add back depreciation and amortization to net income to come up with a free cash flow projection for my DCF analysis, I still only come up with a valuation around $7.

Mind you, I'm using a 11% cost of capital, which I feel is proper for a high-risk company like this, so maybe I could come up with a higher figure using a lower COC - but even with a 9% COC, I come up with a valuation around $9.25. And remember, there are a lot of *ifs* in that analysis. As in, *if* this company goes back to 2005 profitability levels and *if* I can assume that NI + DA is the best measure for a FCF analysis when actual FCFs have not been positive to begin with over the past three years.

I realize they have access to growth markets in India and China. That's a big plus, but I guess I'm still not convinced. I wouldn't go short on this because I haven't done enough research to assume that the market is wrong on India and China growth prospects, but if I were to see it creep to the $9 - $10 range, I'd become very tempted. However, at the current levels, I think this is a good underperform candidate.

Name recognition, finally turning the business toward the right direction by teaming up with major studios to release these blockbuster movies. Lot's of potential, is the future of the movie going experience.