RealD Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of RealD (NYSE: RLD  ) , whose gear is used to project and view 3-D images, fell more than 21% in early trading and remain down more than 15% as of this writing. The company failed to live up to Wall Street estimates for first-quarter revenue.

So what: For investors, this is just the latest in a string of brutal hits. RealD has suffered 10% or worse down days in May, June, and now twice in July. For the first time, the stock is trading below its IPO price of $16 a share.

Now what: RealD booked $59.6 million in revenue, down $64.5 million in last year's first quarter. Analysts were expecting $78.9 million, probably figuring on increased 3-D demand with the release of Time Warner's (NYSE: TWX  ) Harry Potter and the Deathly Hallows: Part 2 and Walt Disney's (NYSE: DIS  ) Captain America: The First Avenger. Management referenced both films in its earnings report. Neither was enough to carry sales to hoped-for levels. Does it matter? You tell me. Let us know what you think about RealD using the comments box below.

Interested in more info on RealD?Add it to your watchlist.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Disney and Time Warner at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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Read/Post Comments (8) | Recommend This Article (0)

Comments from our Foolish Readers

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  • Report this Comment On July 29, 2011, at 4:06 PM, capitalism22 wrote:

    I think the reason the revenues were lower than expected is because the largest slate of movies wasn't figured into that quarter. If you read the press release or heard the conference call you would know that Harry Potter, Transformers, and Captain America were not figured into this quarter. So next quarter is going to be huge.

  • Report this Comment On July 29, 2011, at 6:49 PM, David369 wrote:

    I agree with capitialism22. Although I don't know if the next quarter will be HUGE but just bigger. That probably won't bring back the stock to the higher prices as I think the overall expectations were unrealistic to begin with. I do think that given enough time this company will keep performing especially if the 3-D TVs start selling. Might need a better economy for people to spend on "neat stuff" vs "need stuff".

  • Report this Comment On July 29, 2011, at 7:04 PM, Clint35 wrote:

    This has been one of my best thumbs down picks on CAPS. I think it will continue to do badly.

  • Report this Comment On July 30, 2011, at 2:56 PM, bbflyer wrote:

    What Investors missed is that Net License Revenue increased 39% y/y to $35.7MM and beat most expectations. This is why the company's margins increased substantially and crushed all of the analysts estimates at $26.1MM EBIDTA for the quarter and $9.6MM GAAP Net/ $.17 per share.

    Total revenue was the only # RLD missed but that was mostly because of a large decrease in sales of overseas eyewear because consumers have been re-using them. This is a huge benefit to RLD because they are not in the low to negative margin glasses business and it shows that consumers overseas are very excited about 3D since they remember to keep their glasses and bring them to the next show.

    It also shows that more people globally are going to 3D movies as RLD's Net License Revenue comes directly from a royalty on each ticket sold. There is no other way to explain the increase in Net License Revenue.

    This quarter should be huge as Transformers 3 and Potter are about to cross $1 billion globally, Cars 2 is almost entirely in this quarter at $350MM++, Captain America has just started and has already passed $100MM++ gloabally, Smurfs just opened and is crushing expectations.

    Everyone seems to be doubting the future of 3D and audiences desire to see 3D movies but the fact is most of the top producing movies over the last couple of years have been in 3D and the trend is getting stronger. For example, before Avatar there were only 4 movies that had broken $1 billion globally. The first was Titanic in 1997, then Lord of the Rings in 2003, then Pirates 2 in 2006, then Dark Night in 2008. Then Avatar hit at $2.8b in 2009 (most of it played in 2010 and the next closest, Titanic, was $1.8b both by Cameron). Avatar absolutely crushed all other movies. But what's even more interesting is the rate at which movies are joining the billion dollar club. In 2010 2 movies joined: Alice in Wonderland and Toy Story 3. So far 2011 only Pirates 4 has made the list but both Potter and T3 are $900MM++ and are forecasted to pass $1 billion next week. If that happens, 6 of the 10 movies ever to break $1 billion are in 3D. Yes some of this is due to ticket price inflation but dollars are dollars. This trend seems pretty obvious to me and RealD's business model of per ticket royalty is incredibly powerful and profitable. Just wait and see....

  • Report this Comment On July 31, 2011, at 1:38 PM, jayshelley wrote:

    I have been working is stereoscopic media for 12 years, often with people who possess 4 decades of 3D expertise. There is a simple reason why 3D is hit or miss: quality control. Some studios (Disney animation, most notably) lavish care and dollars on making every frame count in 3D. Others treat it as a simple check-box category. Consumers, particularly young theatergoers who are wired 24/7, know almost instantly where the quality lies, and which duds to avoid. I watch every 3D film released, and the popularity of AVATAR, TRANSFORMERS 3D and others is directly tied to good 3D, vs. stereo that gives you a headache or is flat and lifeless.

  • Report this Comment On July 31, 2011, at 1:43 PM, jayshelley wrote:

    Among the factors that killed 3D in the 1950s was poor quality. Back then, 3D films like HOUSE OF WAX required two projectors, one for the left-side and the other for the right. Cheaper 3D movies often went out without specific instructions to projectionists. When they cut out a frame or two due to damage, the people in the booth often forgot to conform the second print. This resulted in headaches, and people began, as Samuel Goldwyn quipped. "staying away in droves."

  • Report this Comment On July 31, 2011, at 2:28 PM, bbflyer wrote:

    Jayshelley-

    So your point is that 3D has to be done correctly in order for it to be enjoyed and if it is, then it is here to stay?

    That is my personal view and I think we are still in the early days of 3D. Directors, producers, studios, and exhibitors will only get better at producing and showing 3D movies and consumers will favor high quality 3D product over 2D.

  • Report this Comment On August 04, 2011, at 12:07 PM, Cubano68 wrote:

    While I read the interesting article on DLB being the next Intel inside I think you need to look at RLD. If you look at the list of movies they are associated with, then look at their competition in this space and their licensing revenue you can see a trend here.

    They were beaten up for nothing. I agree with Capitalism22, David369 and especially bbflyer on their assessments.

    We as consumers are becoming accustomed to great sound and now great visuals so Dolby and RLD go hand in hand.

    Wait until the economy picks up and people start being more open to buying "wants" not "needs" and I think 3D televisions and glasses are there. RLD is that next Intel inside.

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