Please ensure Javascript is enabled for purposes of website accessibility

5 Reasons IMAX Is Up After Its Q3 Earnings Report

By Danny Vena - Nov 1, 2019 at 12:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There was a lot to like, as the big-screen theater specialist is on track for a record-breaking year.

Expectations were low going into IMAX's (IMAX 4.16%) third-quarter financial report. The company delivered a blockbuster second-quarter earnings report, but investor pessimism about the fate of the movie industry has weighed on the consumer discretionary stock, leading to concerns that lower third-quarter ticket sales would derail the company's record run.

IMAX once again proved the detractors wrong, remaining on track to deliver the best box-office year in its storied history. Here are five factors that drove the stock higher -- even on a down market day.

The IMAX logo at the top of a building against a brilliant blue sky.

Image source: IMAX.

1. Solid revenue growth

IMAX reported revenue of $86.4 million, up 5.2% year over year, just missing analysts' consensus estimates of $86.88 million. This was driven by an increase of 19.1% in global box office.

That might not sound like much to write home about, but consider this: The overall industry box office in the U.S. is down about 5.7% year over year through the end of September -- meaning IMAX is beating the industry by a wide margin.

2. Expanding bottom line

IMAX was able to parlay its meager revenue gains to an impressive profit performance. Net income of $10.9 million climbed 45% year over year.

After driving down its operating expenses over the past couple of years, IMAX was able to keep its costs essentially flat year over year in the third quarter. Year to date, operating expenses have declined by 6.6% compared to the first nine months of 2018. 

3. The company's business in China is booming

IMAX has big screens all over the world but its audience in China has a big appetite for movies and an even bigger appetite for IMAX. Through Oct. 7, the overall box office in Mainland China has grown just 2.9% year over year in 2019, while IMAX's China box office has grown by a whopping 27%.

That demand for IMAX was on full display during China's recent National Day celebrations. IMAX set the stage with three local-language tentpole movies -- My People, My Country; The Captain, and The Climbers -- for audiences to enjoy during the weeklong October holiday. IMAX's box-office take soared on opening day, up 238% year over year, but that was just the beginning. When it was all over, IMAX reported a record-breaking performance, with ticket sales that jumped 164% compared to the prior-year holiday. 

4. Its network is growing

With so many ways to spend their time, consumers need an incentive to get out and go to the movies. IMAX provides that with a growing network of big-screen theaters around the world. That number increased in Q3 by 127 theaters compared to the prior-year quarter -- an increase of 9% year over year. The IMAX network now spans 1,568 systems, with 1,473 systems in commercial multiplexes in 81 countries. With two-thirds of its global box office outside the U.S., IMAX boasts strong geographic diversification.

That's not all. IMAX signed contracts to add another 22 new theaters and eight upgrades to its growing backlog. The company now has 607 theaters -- including 125 upgrades -- on the waiting list for IMAX systems.

5. The best may be yet to come

After last year's record-breaking box office performance, 2019 is having a hard time measuring up. Don't worry, though, as there are several potential hits waiting in the wings.

The fourth quarter started off with a bang with Joker exceeding expectations, becoming the highest-grossing R-rated movie of all time. Still to come are Terminator: Dark Fate (which sees the return of Arnold Schwarzenegger and Linda Hamilton), Jumanji: The Next Level, Frozen 2, Ford v Ferrari, and one of the most highly awaited movies of the year: Star Wars: The Rise of Skywalker.

Considering IMAX's performance so far this year and with several blockbusters yet to come, CEO Rich Gelfond said the following in the company's earnings press release: "We are on track for a strong fourth quarter to top off our record-breaking year."

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

IMAX Corporation Stock Quote
IMAX Corporation
$16.01 (4.16%) $0.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.