Shares of IMAX (Nasdaq: IMAX) traded as much as 8% lower today, after a Seeking Alpha contributor published a bearish take on the company.
Calling IMAX a fad stock and a premium cinema gimmick are some pretty heavy bearish assumptions. I spoke to IMAX CEO Rich Gelfond today, who naturally wasn't very happy with Larry Meyers' piece.
"IMAX has been in business for 43 years," Gelfond responds. "I find it unusual to call a 43-year old business a fad."
Meyers compares IMAX to Jones Soda (Nasdaq: JSDA), Build-A-Bear Workshop (NYSE: BBW), and Heelys (Nasdaq: HLYS). It's a laughably unfair comparison at all three levels. Jones Soda wasn't able to turn edgy marketing of its alternative beverages into a profitable business. Heelys and its rolling shoes were quickly exposed as safety risks. Build-A-Bear has been posting negative store-level comps every single year since 2004.
Where does IMAX fit in all of this? Let's cut to the box office receipts.
Multiplex operators may have had a flattish 2010, but IMAX screenings of digitally remastered flicks generated $546 million in ticket sales last year, more than doubling the previous year's receipts.
Infinite possibilities
Meyers also picks on the finite expansion potential of IMAX, singling out a goal of 1,300 screens before the market is saturated.
Gelfond points out that theater count goals are moving targets. A few years ago, IMAX saw China as a 90-screen market. There are now 177 screens either open or in the order backlog. Russia was seen as a 30-screen country, but there are already 40 IMAX screens either open or contracted to open there.
"The market changes, and our intelligence changes," Gelfond says.
Meyers also points out that moviegoers will tire of the trend of IMAX shifting to smaller screens in many of its multiplex locations over its eight-story-tall museum-based projections.
Really? I didn't even need Gelfond to respond there. I've heard the "LieMax" arguments for a couple of years, and clearly we see how moviegoers have responded. Whenever a new release is available on IMAX, those screenings take in a far greater percentage of the viewers than conventional theaters.
To 3-D or not to 3-D
It's always possible that 3-D is a fad. Shares of DreamWorks Animation (NYSE: DWA) and 3-D outfitter RealD (NYSE: RLD) took a hit after an uninspiring debut for Kung Fu Panda 2 two weekends ago.
However, the failure of the computer-rendered martial arts flick actually validates the IMAX model. Most of its screens were airing the fourth installment of Disney's (NYSE: DIS) Pirates franchise. The growing number of flicks being remastered for IMAX is making the company more blockbuster-agnostic. If a dud hits the super-sized screen, a replacement is never too far away.
Shares of IMAX may not necessarily be screaming bargains. The stock hit a fresh multiyear high earlier this month and currently trades at 33 times this year's projected profitability and 22 times what analysts are targeting for 2012.
However, the company's improving fundamentals continue to make it a stronger company. It's been able to refinance its debt at more attractive rates and now has greater financial flexibility to dabble into more of its revenue-sharing arrangements where IMAX is even collecting a piece of that heavily marked up tub of popcorn you're going to buy during tonight's Super 8 advanced screening.
Calling IMAX a fad ignores its history. Calling this a finite market dismisses the potential of an exhibitor adding more than one IMAX projection system in any given multiplex. Calling for moviegoers to walk out of the smaller-sized IMAX screens fails to point out that this still represents a far greater cinematic experience than conventional screens or anything that one can round up at home.
Premium cinema is here to stay. The same can't be said for the kid on wheels holding an overpriced stuffed bear while sipping down Tofurky-flavored pop.
Is an IMAX screening worth the premium? Please share your perspective in the comment box below.
