Will IMAX Corporation Finally Get Its Big Growth Back?

Source: IMAX.

With its giant-sized screens, IMAX (IMAX -0.61%) once revolutionized the movie theater industry. A premium viewing experience enabled it to charge upscale prices for viewings, yet demand for the extraordinary audiovisual technology remained strong. As IMAX prepares to report its latest quarterly results, though, the company is trying to adapt to changing conditions in the industry that have led to much greater adoption of home viewing.

IMAX tends to see results reflect whatever blockbuster movies Hollywood releases in a given quarter. But the company has also looked hard at ways it can develop new and growing sources of revenue. In particular, IMAX has worked to expand its international scope, with China being a key driver of growth over the past five or six years. Let's take an early look at what has been happening with IMAX over the past quarter and what we're likely to see in its report.

Stats on IMAX

Source: Yahoo! Finance.

Source: Wikimedia Commons.

Will IMAX earnings be larger than life this quarter?
Investors haven't been entirely comfortable with the prospects for IMAX earnings in recent months, with analysts cutting their expectations for the third quarter and for full-year 2014 by $0.04 per share. The stock has made substantial progress, though, climbing 14% since mid-July.

Most of the stock's positive move came after IMAX reported its second-quarter results in late July. As Rule Breakers analyst Simon Erickson noted, the success of Godzilla, Captain America: The Winter Soldier, and other high-profile movies helped boost IMAX's numbers and restore confidence in the health of the format. Moreover, with a solid slate of releases in the second half of 2014, IMAX seems on pace to deliver good results going forward as well.

Yet IMAX has had some difficulty in keeping its overall revenue growing. Last quarter, joint revenue sharing arrangements with its theaters resulted in 6% higher sales for the segment, but that accounts for only about a third of IMAX's total revenue. In the system-sales segment, revenue dropped 15% from the year-ago level, and sales from digitally remastering films into IMAX format fell by about 7%.

That's a big part of the reason why IMAX has worked so hard at expanding its international reach. IMAX has 868 theater systems worldwide, having installed 11 new systems during the second quarter. More importantly, IMAX already has 419 more theaters planned for construction, with locations scattered across the globe. China has been a particularly huge market, with more than 160 IMAX theaters in the emerging-market nation today compared to fewer than 10 just six years ago.

Will the new Crouching Tiger, Hidden Dragon sequel be a game changer? Image source: Rico Torres for Netflix.

One hot-button issue that has come up recently is IMAX's partnership with Netflix (NFLX -2.52%), under which the digital streaming specialist will make its Crouching Tiger, Hidden Dragon sequel available to subscribers on the same day that it is released in IMAX theaters. Traditional theater companies are concerned that the same-day release will make would-be theater-goers stay home, although IMAX shareholders can hope that no one will match the big-screen experience with a home-streaming viewing. Nevertheless, the expected release next summer will test the long-held premise that movie theaters' primary advantage is exclusivity, at least during the initial few weeks or months of a new release. If IMAX can produce strong results despite the movie's availability on Netflix at exactly the same time, it could result in a shift of perception about the role theaters play for those seeking entertainment.

In the IMAX earnings report, investors need to look beyond the headline numbers to see how the company's various segments did. Numbers from blockbuster movies ebb and flow, but it's more important for IMAX to remain on course for sustained growth in worldwide exposure if it wants to sustain its upward trajectory for its shareholders.