IMAX (IMAX) is now truly synonymous with 3D and moviegoers can’t get enough. They remember the incredible experience of watching 3D blockbusters such as the movie "Avatar" on the giant screen and now they want more. The IMAX Corporation without question has turned a new leaf given its successful implementation of a new business model, combined with better technology, and more high demand movies. We’re bullish on the IMAX Corporation for three reasons that deal with its growth stock characteristics.
Reason 1: Numbers Speak Volumes
The firm posted explosive 4th quarter results that beat expectations. Top line highlights include system sales & leases climbing 68 %. With top line growth numbers like this it’s clear that U.S. theater operators feel moviegoers demand for the "IMAX Experience." Film revenue also posted strong growth with an increase to 19%. As part of the new IMAX business model it now takes a cut of box office receipts.
Now film revenue might not sound like a hot topic but we feel that this area has been overlooked. The aggressive expansion of 3D theaters, recent blockbuster successes such as "Avatar," and positive moviegoer feedback has finally made studies bullish on 3D. As well, IMAX theaters in many cases now generate higher revenue per screen when compared to a tradition screen. This makes every party involved improve their respective bottom line and nobody is going to kill a new golden goose. All of this should help equate to accelerate film revenue growth for IMAX.
IMAX isn’t just popular in America either. The CEO was clear to point out that IMAX has strong demand internationally as well. For example 3D movies in Russia were a phenomenal hit and a full year highlight for the firm. Make no mistake IMAX has strong international ambitions as it plans to operate another 300 theaters in China over the next 5 years.
Reason 2: IMAX Has a New Playbook
Compare this firm to what it looked like 10 years ago and you can tell it’s using a new playbook. IMAX now implements a joint venture model that is starting to pay real dividends. The firm now eats a portion of the upfront installation costs related to a new IMAX theater and in return it receives a cut of the box office receipts. This sounds like a great deal because it should allow IMAX to now generate recurring revenue and offer more stable cash flows.
The firm has finally realized that in the long-term the real money to be made isn’t solely related to upfront system sales & leasing. Instead, it’s better to share some of the upfront installation cost but then enjoy a portion of the recurring revenue that is generated in every IMAX theater. In addition, this firm just tapped into a continuous content stream that should provide shareholders with above average earnings growth.
Reason 3: Breaking Away From the Pack
The firm pointed out during the 4th quarter conference call that it has substantially increased marketing and branding efforts to differentiate itself from competitors. Its focus has been to brand IMAX movies as high-end 3D content. We like the fact that the firm realizes there is real competition in this space and managing it well. At this point it looks like branding and marketing efforts are paying off as they continue to stay ahead of competition.
The X-factor for the firm in our view is the next generation IMAX 3D digital camera. The firm states that it has received sound demand from filmmakers interested in making more 3D movies and TV shows. This new camera has been slated to officially launch sometime in 2011. Our view is that this new IMAX 3D camera will help push for greater 3D IMAX exclusivity in the movie making world overall. Ultimately, this new camera should help the firm unquestionably break away from the pack of current competitors.
For the investor who is interested in a growth firm, IMAX is a name to check out. This firm has above average top and bottom line growth, a name in the industry, and plenty of long-term potential. We look forward to seeing what IMAX brings to the table for 2011.