IMAX Stock Slowly Fades to Black

Layoffs and buybacks aren't the answer to get the premium theatrical experience provider back on track.

Rick Munarriz
Rick Munarriz
Jun 13, 2017 at 9:13AM
Consumer Goods

Things aren't going well for IMAX (NYSE:IMAX) lately, and its latest recourse is to tighten its belt and return more money to its shareholders in the form of stock buybacks. The provider of super-sized theatrical experiences announced after Monday's market close that it would be laying off 14% of its workforce, as well as initiating a $200 million stock repurchase.

It's understandable if investors don't get excited about IMAX eliminating 100 full-time positions, even if the end result will be $20 million in annual cost savings. Scaling back its payroll sends the wrong message about its growth prospects, and naturally it could ding morale at the company.

The buyback also isn't going to give the market a boost in confidence. IMAX is just wrapping up a similar $200 million repurchase authorization that started in 2014. It will have bought more than 6.4 million shares in that run, and while the end result is that it has reduced its share count by 4% over the past three years the numbers don't lie. IMAX will have paid roughly $31 a share for the stock it gobbled down, a 22% premium to where the shares are now. Whether you view that as IMAX paying in retrospect to eat its own cooking or a sign that a $200 million buyback won't save the stock from sinking, neither scenario is a bullish one for IMAX stockholders.  

IMAX 3D ad for "World of Warcraft" movie.

Image source: IMAX.  

Lights -- Camera -- Traction

Monday started out on a more promising note. IMAX teamed up with AMC (NYSE:AMC) to unveil the second IMAX VR Centre at AMC Kips Bay 15 in New York City, and the first virtual reality-enhanced system in a multiplex. IMAX VR gives guests immersive, multi-dimensional virtual reality experiences with applications in both movie viewing and gaming. 

However, little seems to be going right for IMAX these days. The stock hit a three-year low late last week, tumbling after Mike Hickey at Benchmark downgraded the stock. With industry per-screen averages declining and IMAX itself posting double-digit declines in revenue in three of the past four quarters it's hard for some Wall Street pros to rally behind the shares. Some theaters -- including longtime IMAX partner AMC -- are also introducing differentiated premium-viewing experiences with automatic recliners and reserved seating that don't lean on IMAX to command higher ticket prices. 

VR could be the ticket to renewed growth, but layoffs and IMAX in cost-containment mode should make things harder. IMAX will need new catalysts if it doesn't want to overpay for the next $200 million in stock that it will be buying.