Bear of the Day: Imax Corp (IMAX)

Life lately has unfortunately been filled with severe restrictions (or outright prohibitions) on scores of activities that millions of people love to do. With the prevailing public health and safety recommendations advising against crowds, indoor activities and encouraging social distancing, seeing a motion picture in a movie theater is basically impossible.

While many businesses have been able to keep at least some semblance of their regular operations running – like restaurants with outdoor dining or retail locations with curbside pickup – there’s virtually no way to make a traditional trip to a theater safe. Though drive-ins are making a nostalgic comeback in some places, there’s simply enough infrastructure to replace more than a tiny portion of lost revenue in that format.

Imax Corporation (IMAX) has been around since 1967 and was the pioneer of the proprietary process that used larger film, running horizontally to allow higher resolution and more realistic images, and displayed on a huge curved screen in front of stadium audience seating.

For decades, IMAX productions were mostly shown in Museums and Planetarium and had been filmed exclusively for the Imax format (originally called “Multivision.”) The screen was 7 stories tall.

In 2008, the company introduced “Digital IMAX” – which allowed for the conversion of regular-sized movie buildings to the format. Though a few purists argued that resolution suffered when compared to the original giant screens, most of the moviegoing public loved it.

Audiences loved new blockbuster releases that were shot in IMAX format as well as encore presentations of films that had been converted. The company’s fortunes soared, leading to a 2010 IPO (and the spinoff of the Chinese subsidiary in 2015.)

Prior to the pandemic, IMAX was generating roughly half of it’s revenues from the operation of theaters and half from remastering, other production services and equipment sales. That means that beginning in March 2020, as much as half of sales disappeared overnight, and it could be much worse.

Revenues for the next two quarters and full-year 2020 are forecast to be off by 48-66%. Though some costs have been reduced somewhat during the shutdown, many remain in effect even with theaters closed, leading to a 2020 Zacks Consensus Earnings Estimate for a loss of ($1.38)/share – down 231% from 2019.

Recent downward revisions earn IMAX a Zacks Rank #5 (Strong Sell).

CEO Rich Gelfond stressed recently in an open letter to customers that the company would put safety first and foremost and also teased some “dream projects” that the company now has time to pull off the shelf which he hopes will someday make up for the delay in the releases of almost all Hollywood fare.

Unfortunately, no one knows when that day might come. We all wish we could get back to normal, including going to the movies. As investors however, it’s not the right time to bet on a sharp or immediate comeback in the industry.

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