You may want to put on some of RealD's (NYSE: RLD ) specs before pulling up the stock's chart this morning.
Shares exploded to an all-time high after the leader in converting ho-hum multiplex screens into premium 3-D experiences posted better-than-expected results.
Revenue soared 69% to $65.3 million, as its quarterly deficit narrowed to $0.12 a share. Analysts were banking on a loss of $0.17 a share on a mere $50.9 million in revenue.
Don't let the losses turn you off. Wall Street isn't expecting a profit out of RealD until fiscal 2012. This is an arms race, as RealD tries to stay ahead of other upstarts with dreams of outfitting movie theaters with 3-D gear. Right now, RealD has to subsidize the hardware, resulting in negative gross margins for its products. The juicy licensing revenue is already trickling in, but it will start gushing once RealD's empire expands.
In other words, shareholders should actually applaud the red ink right now. Green Mountain Coffee Roasters sells its Keurig brewers essentially at cost -- knowing that it will more than make that up in K-cup refill sales. Microsoft (Nasdaq: MSFT ) and Sony (NYSE: SNE ) are widely believed to be selling their video game consoles at a loss. Software developers pay them a royalty on every title sold.
RealD's subsidizing model isn't exactly the same, but the truth remains that better days will come if it continues to expand its installed base and if consumers don't tire of paying a premium for enhanced cinematic experiences.
The plan is working. IMAX (Nasdaq: IMAX ) and RealD hit new highs this week. The same can't be said of the multiplex operators, as Carmike Cinemas (Nasdaq: CKEC ) and Regal (NYSE: RGC ) are trading closer to their 52-week lows than their highs.
The slate is now loaded for IMAX and RealD, with movie studios making sure that their more promising action and animated releases get remastered for IMAX and optimized for 3-D screenings.
The studios, audiences, and investors are coming. In RealD's case, the profits will come soon.
Have you paid a premium for a 3-D screening? Was it worth it? Share your thoughts in the comment box below.
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