IMAX by the Numbers

The debate is raging about what IMAX (NYSE: IMAX) is really worth. In June, Seeking Alpha published a short view article about IMAX and then my Foolish colleague and Motley Fool Rule Breaker Rick Munarriz talked to CEO Rich Gelfond to clear up the facts. Then last week, the short-sellers got their wish when IMAX reported disappointing earnings and the stock was sent back to the doghouse. So who is right, and what is IMAX really worth?

To answer that question we need to focus on how many theaters IMAX has, and how much money each one of those theaters generates on average and not a single quarter's results. We can start with the theaters count, which I have shown below along with the top end of estimates for theaters to end 2011, 2012, and IMAX's saturation point. IMAX has increased the number of theaters it is installing twice this year alone, so I think the top end of estimates is probably still conservative for our purpose. IMAX has also pointed to 1,300 theaters as a saturation point, although that number continues to grow as well.

According to IMAX presentations the company's two-year average box office per theater is $1.2 million, and it expects to generate about $400,000 in ongoing EBITDA per joint revenue sharing theater and $160,000 in ongoing EBITDA per sales-type lease theater. Sales-type theaters also generate about $800,000 in one-time EBITDA, but we'll ignore that for now. Plus, operators like Regal Entertainment Group (NYSE: RGC) and AMC Entertainment have opted for joint ventures more often recently.

If we multiply this EBITDA assumption times the number of theaters, we can get an idea of the ongoing EBITDA IMAX should generate each year from theaters. I've then taken the annual EBITDA times four different multiples to show possible valuations for this part of the business.

Remember, the value I have laid out in the table is ONLY ongoing EBITDA -- it doesn't include EBITDA from selling equipment or any other ventures IMAX is involved in.

It is also possible that IMAX improves per screen box office as it -- and movie studios -- perfect what is a successful IMAX film. For example, Paramount Pictures, which is owned by Viacom (NYSE: VIA), is having success at IMAX with Transformers: Dark of the Moon, but Disney's (NYSE: DIS) family film Cars 2 wasn't a hit at IMAX. As IMAX expands the number of movies it shows each year, it will become better at predicting winners and losers.

IMAX also has investments in business like Laser Light Engines and a 3-D channel with Discovery Communications (Nasdaq: DISCK) and Sony (NYSE: SNE). None of these ventures are driving profit yet, but they could add additional value to the business.

IMAX also isn't tied to the success (or lack thereof) of 3-D the way RealD (NYSE: RLD) is. IMAX is selling a superior movie experience in 2-D or 3-D.

Ex-Avatar
Investors need to keep in mind that IMAX is built for movies like Avatar, and the assumptions above were built excluding Avatar because it skewed the numbers heavily. To give an idea of what Avatar's impact was, the movie averaged $1.2 million in box office at IMAX theaters internationally, the same as IMAX averages for a full year. But IMAX lives for big movies like this.

We saw that again this month when IMAX theaters generated $23.2 million in box office for Time Warner's (NYSE: TWX) Harry Potter and the Deathly Hallows: Part 2 on opening weekend. Investors can dismiss these massive hits as one-time events, but they seem to reoccur fairly frequently.

What is IMAX really worth?
The stock market thinks IMAX is worth $1.13 billion right now, about eight times ongoing theater EBITDA at the end of 2011. Based on the numbers I've shown what do you think IMAX should be worth? Sound off in our comments section below.

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