Don't Walk Out on IMAX

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Clearly, there's life after Avatar for IMAX (Nasdaq: IMAX  ) .

The company behind the gargantuan multiplex digital projectors and amped-up sound systems delivered better than expected quarterly results last week. Revenue climbed 38% higher to $55.6 million, as adjusted net income soared by 35%.

IMAX's numbers were good enough to notch an 8% gain on Thursday, a trading day where the major market indices took a dip.

There has been a fair deal of skepticism in recent months, especially given rival premium experience creator RealD's (NYSE: RLD  ) solid IPO this month. Home theaters are also beefing up, with high-def flat screens and this year's onslaught of 3-D televisions. Even Coinstar's (Nasdaq: CSTR  ) Redbox announced last week that its disc-spewing kiosks would begin dispensing Blu-ray eye candy. Netflix's (Nasdaq: NFLX  ) streaming library continues to expand as a subscriber perk, and it's not just old flicks being offered up anymore: I caught Zombieland and The Girl with the Dragon Tattoo just last week.

This doesn't mean that IMAX is toast. There may never be another Avatar-esque release through IMAX, where screens are packed with moviegoers for months. However, IMAX's growing global popularity means that the company will likely make it up in volume.

After brokering yet another deal for more IMAX installations in Russia last week, contracts have been inked for 118 new screens this year, compared with only 35 signed for systems through all of 2009. As IMAX's installed base grows, the scalable model truly kicks in given the fixed costs of digital remastering.

In an homage to the network effect, more screens translate into more studios making sure that their films get the super-sized IMAX treatment. There are already eight buzz-worthy releases on the IMAX release slate for 2011. At this point last year, there were only half as many movies on board for the 2010 calendar. It goes without saying that the more releases, the less necessary it is for IMAX releases to have legs beyond the first few weeks.

Time Warner's (NYSE: TWX  ) Inception has delivered two strong weeks on IMAX platforms. China's Aftershock is off to a strong start in its home market. All this bodes well for the current quarter, but the real treat will be when IMAX is running on all projectors.

IMAX used to believe that there was room for 1,000 IMAX screens worldwide. It bumped that ceiling to as many as 1,250 systems on Thursday.

The movie's just getting started. Do you really want to leave before the action heats up?

Have you paid a premium to see a movie on IMAX or any other cinematic upgrade? Please share your perspective in the comment box below.

IMAX is a Motley Fool Rule Breakers recommendation. Netflix is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services, free for 30 days. It's a screening you won't want to miss.

Longtime Fool contributor Rick Munarriz is a movie buff, but he doesn't own shares in any of the stocks in this story except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 02, 2010, at 1:36 PM, saron1 wrote:

    IMAX also has a stronger 3D brand than RealD or Dolby. But the experience is different - more depth, more immersive at the cost of eye-strain and shadows for some viewers. Also, do you really want to be inside the action on every movie? Avatar yes, Up no.

    But, all in all, the strongest reason to pay a premium for a 3D theater experience is the thrill of immersion - which IMAX excels at.

    Long on Imax

  • Report this Comment On August 02, 2010, at 1:44 PM, Beautyfan wrote:

    Don't count Blockbuster out. With the right management and marketing. Blockbuster will come back big. Blockbuster On Demand is now available on Google Android phones. You can watch all the new releases and more without the 28-day waitng period on Droid. The pictures are in really good quality, not like NFLX. Blockbuster offers much better deals than NFLX can ever dream of doing.

  • Report this Comment On August 02, 2010, at 2:58 PM, motleymarko wrote:

    I would agree that Blockbuster is down but not out. As the deal with Google may show, the outlook for a company can change quite quickly.

    IMAX looks good, but is approaching resistance. I'll buy on any minor pullback.

    BLOKA is a buy now. NFLX is a buy in the low 90's, and CSTR in the high 30's, once the gap at $38 is closed.

    Personally, I've never paid much attention to CSTRs vending machines. Their take on the coin exchange is way too high, and their videos always seem way too dated.

  • Report this Comment On August 03, 2010, at 12:12 AM, tretchikoff wrote:

    Yes have seen Avatar in January in New Zealand at Imax -superb technically,but the movie reminded wife & I of old western movies of Red Indians(bows& arrows & head bands of feathers) which were prominent in Avatar. Also Avatar reminded us of the old Tarzan movies.But the younger generation & kids just loved it-so hopefully there will be Avatar 2 & possibly 3.which wiil be great for Imax shareholders.Anyaway since the number of Imax creens is growing so will the earnings-thus higher share price,say $30+/share.



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