Will RealD's Earnings Finally Catch Up With Its Stock?

On Thursday, RealD (NYSE: RLD) will release its latest quarterly results. With its stock having jumped sharply throughout the past year or so, investors should look closely to make sure its fundamentals are keeping up with its share price.

RealD has benefited from the rise of 3-D technology at movie theaters, with an increased willingness and demand for 3-D content not only for niche offerings but for blockbuster releases. Yet the company also has to face competition from a large and growing rival. Let's take an early look at what's been happening with RealD over the past quarter and what we're likely to see in its report.

Stats on RealD

Source: Yahoo! Finance.

How will RealD's earnings fare this quarter?
Analysts have gotten a lot more optimistic in recent months about RealD's earnings prospects, narrowing their March-quarter loss estimates by $0.06 per share and now anticipating a modest profit for the fiscal 2014 year. The stock has already gotten a head start on the turnaround celebration, jumping almost 30% since the end of February.

From RealD's recent performance, investors who are new to the stock might be perplexed by the company's weak revenue and earnings. When you look back to the company's 2010 IPO, you'll notice that the stock has actually come down quite a bit, as huge revenue growth in the company's fiscal 2010 and 2011 years gave way to stagnant sales in 2012 and revenue declines this year. Given the rise of blockbuster action franchises that have brought in billions in box-office receipts for major movie companies, that trend is troubling for RealD. The decision from Sony (SONY -0.13%) to stop subsidizing the 3-D glasses that viewers need to watch RealD versions of films as of a year ago was also a big contributor to RealD's decline, as it put another barrier in front of would-be 3-D patrons. It also marked a big loss of confidence for RealD, as Sony had formed a partnership with RealD years before RealD went public to develop 3-D projection equipment, and therefore Sony had a vested interest in seeing RealD succeed as well.

The main rival that RealD faces is IMAX (IMAX -1.77%), and the biggest challenge IMAX poses for RealD is that IMAX and its huge-screen theaters give viewers an impressive experience even with 2-D films. That flexibility has been a key component driving IMAX's growth, with a global footprint extending to hundreds of theaters in more than 50 countries worldwide. RealD has tried to match that with its precision white-screen technology, but RealD can't make theater-operators install the huge screens to match up to IMAX.

Still, with a share of box-office receipts for movies that studios show in 3-D format, RealD hopes to turn things around with the coming release of Man of Steel later this month. Moreover, with the blockbuster Iron Man 3 not having been released until early May, none of that movie's impact will be in RealD's March numbers.

In RealD's report, therefore, the more important information will come from any guidance the company gives for its June quarter. If RealD can't make solid strides toward sustainable profitability with such an impressive lineup of blockbuster movies, then investors need to take a second look at their entire premise for owning the stock.

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