RealD Loses Out On the Small Screen

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It's back to the big screen for RealD (NYSE: RLD  ) .

Shares of the multiplex 3-D outfitter opened 14% lower today -- and were down by as much as 23% -- after announcing that a display licensing deal with Samsung isn't going to happen. Posting mixed quarterly results also isn't helping.

RealD had teamed up with Samsung on a licensing agreement that would bring RealD display technology to Samsung panels featured in laptops, desktop monitors, and other LCD displays. RealD was pointing to early 2012 availability for the consumer electronics venture that would make RealD a force outside of the neighborhood movie theater.

Well, Samsung is not pursuing the initiative at the time, leaving RealD to smoke out a new partner for its 3-D display technology.

It's at this point that one can argue that at least RealD has exhibitors in its back pocket, but things aren't as well as expected there either. Revenue climbed 35% to $88 million in the third quarter, but analysts were targeting a 45% top-line surge. Earnings easily beat Wall Street expectations, but it's hard to get excited about margin expansion if the pros overestimated top-line demand.

Investors shouldn't give up on RealD, especially now as it falls into the single digits. Premium cinema specialists RealD and multiplex supersizer IMAX (NYSE: IMAX  ) are thriving overseas. International markets are now accounting for 56% of RealD's gross license revenue.

There will always be concerns that 3-D is a fad. RealD's stock took a hit back in May, just because DreamWorks Animation's (NYSE: DWA  ) Kung Fu Panda 2 wasn't a hit with the 3-D-specs-donning crowd. Television manufacturers that thought consumers would snap up 3-D televisions have suffered through two years of disappointment on the home theater front.

However, exhibitors wouldn't continue ordering IMAX projection systems and RealD 3-D makeovers if theatergoers weren't willing to pay a premium to see more immersive screenings. Today's dive in shares of 3-D is a buying opportunity that's coming right at you.

 If you want to see how premium cinema holds up beyond today's matinee, consider adding RealD and IMAX to My Watchlist.

Motley Fool newsletter services have recommended buying shares of DreamWorks Animation SKG and IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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  • Report this Comment On November 03, 2011, at 2:35 PM, Gonzhouse wrote:

    Sorry, 3D should be the dictionary-definition of a fad. Every decade since 1960 has seen 3D as the 'next big thing' and each time it has quietly petered out. The 2010 decade will be no different. IMAX isn't a 3D play; it is an emerging markets play. While RealD is also into emerging markets as you point out, it won't do any better there than it will in the US once it starts declining.

    3D will never become universal; it just does not work for anything other than animation, sci-fi, and horror.

    Hopefully the Motley Fool will keep comments around for 10 years; in 2020, I can just copy and paste the above rather than try to think of how I wrote about 3D 10 years ago.

  • Report this Comment On November 03, 2011, at 6:04 PM, teviny2k wrote:

    3D is not a fad...its here to stay. Get used to it. 3D is superior compared to 20 years ago.

    It's the economy, stupid. 3D Tv sales and movies are all suffering because of the economy. The proof is international and the growing middle class in emerging markets. Movie goers in emerging markets was never burned by 3D, hence it seen for what it is...superior. International markets have been introduced to 3D with this generation of technology. The US started with smoke and mears. When the US economy picks up then paying a premium for movies will return. The content will improve and consumers will demand it. 3D in the US has alot of history to break threw. Poor 3D movies during the baby boomers generation are now the ones paying for the tickets today. Burn my once on 3D shame on you; burn my twice and shame on me. The baby boomers will not return to 3D but the X generation will.

  • Report this Comment On November 03, 2011, at 9:54 PM, bbflyer wrote:

    I agree with teviny2k. The reason 3D is here to stay this time is for 2 reasons: The technology is far superior for both the production and display of 3D images than in the past primarily thanks to RealD and film producers/directors such as Cameron, Katzenberg, Spielberg, Scorsese, and Lucas. The second reason is that audiences are more diverse and global than ever before and therefore have many different preferences. The youth today have also grown up in a media rich visual environment and it is only natural for them to want to take it the next level.

    Consider the facts:

    - 3D makes up about 20% of the $33 billion box office and is forecasted to continue to grow. That means 3D is a $6.6 billion business just in the box office.

    - 6 out the 10 top internationally grossing movies of all time were in 3D.

    - Only 10 movies have made more than $1 billion globally, 6 of them were in 3D the last 6 to break the $1 billion level.

    - Everyone benefits- the studios and exhibitors make more money per ticket and film and the consumer gets a more immersive experience if they so chose. If they don't want it they can go to the 2D showing.

    It is hard to imagine 3D going away anytime soon when you consider the facts. RealD is trading at about 4.8x trailing 12 month EBIDTA ($102MM) and about 3.5 - 4x EBIDTA for CY2012. That's dirt cheap for a high growth technology stock....

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