IMAX Hopes to Build Momentum Heading Into Year-End

Image source: IMAX.

There's a lot of excitement building around the slate of movie releases coming in the next few months, with Disney's (DIS -0.43%) renewal of the Star Wars franchise taking center stage and a host of other blockbuster prospects aiming themselves at movie audiences.

IMAX (IMAX -2.03%) wants to take full advantage of the chance to attract huge numbers of moviegoers seeking the best possible venue for seeing their favorite films. IMAX expects to release its third-quarter results on Wednesday, and although the late summer months don't provide the theater company with its biggest performance of the year, investors want to see that IMAX is getting ready for the onslaught of patrons that will hit its theaters for the remainder of the year.

Let's look more closely at what we're likely to see from IMAX and whether it can build positive momentum.

Stats on IMAX

Data source: Yahoo! Finance.

Will IMAX earnings be a blockbuster?
Despite the positive sentiment around the movie industry lately, investors have reined in their views on IMAX earnings in recent months. The consensus forecast for the third quarter has fallen more than 25%, and more modest declines of 5% to 6% for full-year 2015 and 2016 projections reflect a substantial change in mood among IMAX shareholders. The stock has seen some volatility during the quarter, but the share price is flat compared to its late-July levels.

IMAX's second-quarter results in July gave investors just about everything they had wanted to see. Revenue skyrocketed by 35%, sending adjusted earnings per share up 60% from year-earlier figures. Global box office figures hit a new record of $343 million, with a big jump in average box office per screen to approach the $415,000 mark. In general, IMAX saw strength in all of its businesses, with sales and lease arrangements, revenue-sharing arrangements, and digital remastering and production all enjoying solid increases.

Despite IMAX's results, other companies that make money from the movie and entertainment industry have shown signs of difficulty, with falling viewership and fewer advertising sales. Even Disney, despite its impressive pipeline of feature films over the next several years, came under pressure from concerns about whether its cable television empire can continue to play the starring role in the entertainment conglomerate's cast of successful businesses. Even though IMAX showed few signs of suffering from this general trend, the stock price nevertheless came under pressure as part of a broader pullback for the industry as a whole.

The key to understanding why IMAX can resist broader trends in entertainment is simply knowing human nature. The ubiquitous availability of streaming video has made it much easier to avoid going to movie theaters in order to see feature films and other content, and traditional theater operators haven't been able to lure would-be customers out of their homes as easily as a result. For IMAX, though, selling the experience is the draw. With blockbusters like Star Wars, the opportunity to relive past theater experiences while getting premium viewing technology gives the high-end company a huge competitive advantage over less attractive rival offerings.

Indeed, IMAX has convinced some movie studios to try to use that unique experience to their mutual advantage. In September, Universal Pictures chose to give its feature film Everest an exclusive IMAX-only release for a full week before opening the film to a broader set of theaters. Some saw the move as risky, but it demonstrates the reputation that IMAX has in appealing to the key demographic that moviemakers want to attract.

In the IMAX earnings report, investors should look at the usual set of metrics that should underscore the company's ability to do well even in a traditionally slower time of year. Far more important, though, will be how the theater company is positioning itself for the fourth quarter and beyond. By capitalizing on its current opportunities, IMAX could be on the verge of launching itself into an even more important company in the entertainment industry going forward.