IMAX by the Numbers

The debate is raging about what IMAX (NYSE: IMAX  ) is really worth. In June, Seeking Alpha published a short view article about IMAX and then my Foolish colleague and Motley Fool Rule Breaker Rick Munarriz talked to CEO Rich Gelfond to clear up the facts. Then last week, the short-sellers got their wish when IMAX reported disappointing earnings and the stock was sent back to the doghouse. So who is right, and what is IMAX really worth?

To answer that question we need to focus on how many theaters IMAX has, and how much money each one of those theaters generates on average and not a single quarter's results. We can start with the theaters count, which I have shown below along with the top end of estimates for theaters to end 2011, 2012, and IMAX's saturation point. IMAX has increased the number of theaters it is installing twice this year alone, so I think the top end of estimates is probably still conservative for our purpose. IMAX has also pointed to 1,300 theaters as a saturation point, although that number continues to grow as well.

Theaters

End of 2010

Added Thru Q2 2011

Est. End of 2011

Est. End of 2012

Saturation

Joint Ventures 171 33 252 297 Est. 650
Sales Type 202 23 238 293 Est. 650
Total 373 56 490 590 1,300

According to IMAX presentations the company's two-year average box office per theater is $1.2 million, and it expects to generate about $400,000 in ongoing EBITDA per joint revenue sharing theater and $160,000 in ongoing EBITDA per sales-type lease theater. Sales-type theaters also generate about $800,000 in one-time EBITDA, but we'll ignore that for now. Plus, operators like Regal Entertainment Group (NYSE: RGC  ) and AMC Entertainment have opted for joint ventures more often recently.

If we multiply this EBITDA assumption times the number of theaters, we can get an idea of the ongoing EBITDA IMAX should generate each year from theaters. I've then taken the annual EBITDA times four different multiples to show possible valuations for this part of the business.

EBITDA Multiple

2011 Value

2012 Value

Saturation Value

6x $833 Million $994 Million $2.18 Billion
8x $1.11 Billion $1.33 Billion $2.91 Billion
10x $1.39 Billion $1.66 Billion $3.64 Billion
12x $1.67 Billion $1.99 Billion $4.37 Billion

Remember, the value I have laid out in the table is ONLY ongoing EBITDA -- it doesn't include EBITDA from selling equipment or any other ventures IMAX is involved in.

It is also possible that IMAX improves per screen box office as it -- and movie studios -- perfect what is a successful IMAX film. For example, Paramount Pictures, which is owned by Viacom (NYSE: VIA  ) , is having success at IMAX with Transformers: Dark of the Moon, but Disney's (NYSE: DIS  ) family film Cars 2 wasn't a hit at IMAX. As IMAX expands the number of movies it shows each year, it will become better at predicting winners and losers.

IMAX also has investments in business like Laser Light Engines and a 3-D channel with Discovery Communications (Nasdaq: DISCK  ) and Sony (NYSE: SNE  ) . None of these ventures are driving profit yet, but they could add additional value to the business.

IMAX also isn't tied to the success (or lack thereof) of 3-D the way RealD (NYSE: RLD  ) is. IMAX is selling a superior movie experience in 2-D or 3-D.

Ex-Avatar
Investors need to keep in mind that IMAX is built for movies like Avatar, and the assumptions above were built excluding Avatar because it skewed the numbers heavily. To give an idea of what Avatar's impact was, the movie averaged $1.2 million in box office at IMAX theaters internationally, the same as IMAX averages for a full year. But IMAX lives for big movies like this.

We saw that again this month when IMAX theaters generated $23.2 million in box office for Time Warner's (NYSE: TWX  ) Harry Potter and the Deathly Hallows: Part 2 on opening weekend. Investors can dismiss these massive hits as one-time events, but they seem to reoccur fairly frequently.

What is IMAX really worth?
The stock market thinks IMAX is worth $1.13 billion right now, about eight times ongoing theater EBITDA at the end of 2011. Based on the numbers I've shown what do you think IMAX should be worth? Sound off in our comments section below.

Interested in reading more about IMAX? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium owns shares of IMAX. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Motley Fool newsletter services have recommended buying shares of IMAX and Discovery Communications. 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.


Read/Post Comments (4) | Recommend This Article (11)

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 03, 2011, at 1:40 PM, Gonzhouse wrote:

    Very solid and objective analysis of the IMAX business model. One variable to add to the analysis: IMAX is going to generate a significant revenue stream from overseas, particularly China. If you believe that the US Dollar, overall, will depreciate and the yuan, in particular, will appreciate it's another plus for IMAX.

    What gets me is the IMAX bashers keep viewing the company as if it was only in the US and present in the local, deteriorating strip mall. IMAX is more an emerging economy story than about the US presence. Emerging economies have significant appetite for IMAX versus the US. As far as reliance on megahits like Avatar, that puts them in the same spot as oil companies looking for the next megafield, car companies looking for the next Acord, and basketball teams looking for the next Michael Jordan.

  • Report this Comment On August 03, 2011, at 2:10 PM, lcalv wrote:

    One other possible growth factor is that IMAX will continue to refine and improve their movie systems. Their R&D department should come up with innovative ways to add premium value to the IMAX experience. The growing Home Theatre phenomenom will push theatre owners to more and more premium viewing platforms and cost innovations will arise as IMAX screen count grows. Obviously, this is a speculative analysis and only adds to but does not replace, fundemental anaysis.

  • Report this Comment On August 04, 2011, at 9:20 AM, David369 wrote:

    Good Job Travis! I actually understood your line of reasoning and the crunched numbers. I think you were conservative and that's good. Good comments by Gonzhouse and Icaly, additional angles I wouldn't have thought of.

    Stocks like IMAX are more subject to the "herd mentality" of the stock market so every time a movie doesn't have a huge box office it will drop the stock. Somehow the expectations of investors seem to exceed reality. I doubt if the theaters were not making money with IMAX they wouldn't install the systems. It the theaters are making money, IMAX is making money. When I see a decline in orders I will start to worry.

    Also, many of my friends/relatives with children will not take their kids to a 3-D movie. They say it is not good for them (they don't really seem to know why). Maybe the pattern is that childrens movies do not do well in 3-D for that reason. Or maybe parents don't want to waste money for 3-D when the kids don't really appreciate it....

  • Report this Comment On August 20, 2011, at 6:44 PM, sufferingproust wrote:

    I agree, excellent objective post. Another observation, Roughly 250 of the IMAX theaters are in the US and Canada. China and India have much larger populations and are expanding rapidly. China has the ability to build a city the size of Manhattan in under 10 years. Just look at Shenzhen.

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