Weekend wait paid off -- Bought Imax (IMAX)
I've been intending to make another IMAX purchase to fill out my position, and I was going back and forth over whether it would make more sense to do it pre- or post-Harry Potter opening. It looks like, for once (and for the moment), my short term decision to wait until this morning to buy paid off. If you're interested, you can see what I wrote when I made my first IMAX purchase here.
Bought Imax (IMAX) today, November 21 at $8.75.
As I type this, the shares are continuing to hover around my buy price -- down about 3% or so from Friday's close. Even though that 3% shouldn't end up making a huge difference to my return if I'm right about IMAX's long term potential, it's still nice to be on the right side of the short term move for once.
Before this year it never would have occurred to me to invest in Imax -- or in any other theater operator, for that matter. It seemed like an awful business. A Fool newsletter turned me on to the fact that IMAX is now carrying up to half a dozen first run Hollywood films a year, and that definitely piqued my interest -- especially after watching as Batman Begins and Charlie and the Chocolate Factory had great numbers in the Imax theater world.
IMAX is still most familiar to most of us as the musem theater operator -- exhibiting those great films about flying, undersea life, natural history, etc. that really create an immersion experience. It has been a huge hit and a revenue driver for nonprofit museums for years, and in my own backyard here in Washington all three of the Smithsonian IMAX theaters seem to be huge hits. For the most part, it seems like that nonprofit base is sticking with it's educational mission and showing the made-for-Imax films like Galapagos and the new Magnificent Desolation: Walking on the Moon (though the theater attached to the Smithsonian Natural History Museum is showing Polar Express 3D this year) ... and those films still seem to be doing quite well.
But the growth driver for the future seems to be the commercial IMAX theaters, in malls and attached to multiplexes, that can show both these great IMAX-showcase films as well as the IMAX-remastered Hollywood hits. Currently, there are about 150 theaters in the US, with about half of them in museums and similar institutions. New gigantic theaters are being built all the time with Imax technology, but the dramatic growth might come, ironically, with Imax going small -- they now have a new MPX format that can fit into malls and multiplexes much more easily and as a retrofit in existing theaters, but still provide a much more immersive experienct than standard projection.
Imax is not unlike lots of other businesses in that they have two basic revenue streams -- they have large up-front sales for designing and installing IMAX theaters, and then they have recurring income from ongoing maintenance and materials and from distribution of their IMAX-ready films.
It is a ridiculous comparison, but I am really struck by the correlation between IMAX and Intuitive Surgical (ISRG), another of my holdings and another that I found through the same Motley Fool newsletter service.
IMAX is not going to grow anywhere near as fast as ISRG, and they have been around a lot longer. But the similarities are there in the business models and in the outside trends that make their models look compelling.
Both currently depend on very large up front payments and orders for the near-term rapid growth of the business. ISRGN sells million+ dollar robotic surgery appliances, IMAX sells and leases multi-million dollar large format projectors and screens. In Imax's case, as with ISRG, new equipment installations currently make up well over half of their income.
But both also have recurring income -- ISRG with annual maintenance contracts and sales of the attachments and replaceable components of their systems, IMAX with service contracts and a share of film box office revenue. SunTrust is estimating that IMAX now has pretty good leverage with Hollywood and other producers of their films, and that they are now getting something in the range of 10-15% of box office -- not bad.
IMAX had a rough third quarter, which brought down the price a little bit -- which is nice as I was able to get my second position at a lower cost than my first. In general, the fourth quarter is their strongest for installation revenue so we should close the year well with up to 50 new theaters added in 2005 (and a backlog of orders waiting) ... but as those numbers of theaters grow (and IMAX is doing gangbusters business overseas as well), the box office share should begin to be a significant part of their income in the coming years.
Harry Potter appears to have opened well at the 60+ domestic theaters where it opened in Imax -- the CEO was on CNBC on Friday claiming sellouts in most cities and strong advance sales, but perhaps part of the reason for this morning's selloff was that they haven't released any specific numbers yet. It seems to be a bit of a jittery market, so maybe folks are afriad that the lack of news is bad news. I'm not particularly worried -- Potter won't make or break IMAX this year, and neither with the Polar Express, which they're hoping will be a recurring holiday special (in spectacular 3D, I'm told) and which should be out this week in many IMAX theaters.
In a few years, I hope the company will have grown it's network to the point that a film's box office is a huge amount of their income -- but, lucky us, they'll have to make hundreds of millions of dollars first installing all those screens. I hope it works out that way -- should be a nice show if it does.
Bought Imax (IMAX) today, November 21 at $8.75.
As I type this, the shares are continuing to hover around my buy price -- down about 3% or so from Friday's close. Even though that 3% shouldn't end up making a huge difference to my return if I'm right about IMAX's long term potential, it's still nice to be on the right side of the short term move for once.
Before this year it never would have occurred to me to invest in Imax -- or in any other theater operator, for that matter. It seemed like an awful business. A Fool newsletter turned me on to the fact that IMAX is now carrying up to half a dozen first run Hollywood films a year, and that definitely piqued my interest -- especially after watching as Batman Begins and Charlie and the Chocolate Factory had great numbers in the Imax theater world.
IMAX is still most familiar to most of us as the musem theater operator -- exhibiting those great films about flying, undersea life, natural history, etc. that really create an immersion experience. It has been a huge hit and a revenue driver for nonprofit museums for years, and in my own backyard here in Washington all three of the Smithsonian IMAX theaters seem to be huge hits. For the most part, it seems like that nonprofit base is sticking with it's educational mission and showing the made-for-Imax films like Galapagos and the new Magnificent Desolation: Walking on the Moon (though the theater attached to the Smithsonian Natural History Museum is showing Polar Express 3D this year) ... and those films still seem to be doing quite well.
But the growth driver for the future seems to be the commercial IMAX theaters, in malls and attached to multiplexes, that can show both these great IMAX-showcase films as well as the IMAX-remastered Hollywood hits. Currently, there are about 150 theaters in the US, with about half of them in museums and similar institutions. New gigantic theaters are being built all the time with Imax technology, but the dramatic growth might come, ironically, with Imax going small -- they now have a new MPX format that can fit into malls and multiplexes much more easily and as a retrofit in existing theaters, but still provide a much more immersive experienct than standard projection.
Imax is not unlike lots of other businesses in that they have two basic revenue streams -- they have large up-front sales for designing and installing IMAX theaters, and then they have recurring income from ongoing maintenance and materials and from distribution of their IMAX-ready films.
It is a ridiculous comparison, but I am really struck by the correlation between IMAX and Intuitive Surgical (ISRG), another of my holdings and another that I found through the same Motley Fool newsletter service.
IMAX is not going to grow anywhere near as fast as ISRG, and they have been around a lot longer. But the similarities are there in the business models and in the outside trends that make their models look compelling.
Both currently depend on very large up front payments and orders for the near-term rapid growth of the business. ISRGN sells million+ dollar robotic surgery appliances, IMAX sells and leases multi-million dollar large format projectors and screens. In Imax's case, as with ISRG, new equipment installations currently make up well over half of their income.
But both also have recurring income -- ISRG with annual maintenance contracts and sales of the attachments and replaceable components of their systems, IMAX with service contracts and a share of film box office revenue. SunTrust is estimating that IMAX now has pretty good leverage with Hollywood and other producers of their films, and that they are now getting something in the range of 10-15% of box office -- not bad.
IMAX had a rough third quarter, which brought down the price a little bit -- which is nice as I was able to get my second position at a lower cost than my first. In general, the fourth quarter is their strongest for installation revenue so we should close the year well with up to 50 new theaters added in 2005 (and a backlog of orders waiting) ... but as those numbers of theaters grow (and IMAX is doing gangbusters business overseas as well), the box office share should begin to be a significant part of their income in the coming years.
Harry Potter appears to have opened well at the 60+ domestic theaters where it opened in Imax -- the CEO was on CNBC on Friday claiming sellouts in most cities and strong advance sales, but perhaps part of the reason for this morning's selloff was that they haven't released any specific numbers yet. It seems to be a bit of a jittery market, so maybe folks are afriad that the lack of news is bad news. I'm not particularly worried -- Potter won't make or break IMAX this year, and neither with the Polar Express, which they're hoping will be a recurring holiday special (in spectacular 3D, I'm told) and which should be out this week in many IMAX theaters.
In a few years, I hope the company will have grown it's network to the point that a film's box office is a huge amount of their income -- but, lucky us, they'll have to make hundreds of millions of dollars first installing all those screens. I hope it works out that way -- should be a nice show if it does.
This article posted by One Guy @ 11/21/2005 02:02:00 PM 0 comments
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