The 2009 hit film Avatar was a watershed event for Imax Corp., and the release of the long-awaited sequel has underlined what investors see as a strong case for shares of the large-screen theater chain at a time when movie-going is out of fashion.
(Bloomberg) — The 2009 hit film Avatar was a watershed event for Imax Corp., and the release of the long-awaited sequel has underlined what investors see as a strong case for shares of the large-screen theater chain at a time when movie-going is out of fashion.
Imax’s shares have fallen less this year than those of rivals, benefiting from an environment that’s split between smaller films that increasingly go direct to streaming and blockbusters, where audiences have shown a willingness to pay up for a more immersive experience. The release Friday of Avatar: The Way of Water could prove to be the year’s foremost example of the latter.
Imax fell 1.1% on Wednesday.
“Avatar was developed with Imax equipment, for an Imax experience, so it will benefit from not only the box office, but also the exposure,” said Michael Obuchowski, chief investment officer at Merlin Asset Management, which owns the stock. “Imax is attractive any way I look at it, with a valuation that is incredibly attractive relative to its long-term growth potential, but the hype around Avatar will be really helpful.”
Imax shares have fallen 14% in 2022, compared with a 26% drop for Cinemark Holdings Inc. and a 66% collapse for AMC Entertainment Holdings Inc., one of the most high-profile “meme” stocks. The S&P 500 Index is down 15.43%.
Avatar, a science-fiction epic from director James Cameron, remains the highest-grossing film in Imax history. There were only 300 Imax screens when it was released in 2009, compared with more than 1,700 screens currently, the company said in an email.
The original opened just before Christmas 2009, but Cameron was already promoting the movie — and by extension, Imax cinemas — in the summer of that year. From June 30, 2009, through the end of 2010, Imax shares more than tripled. By early 2011, an analyst was calling Imax “the Louis Vuitton of theaters.”
An Imax spokesperson declined to give a projection on how the second film could perform, but said the company was “very optimistic.”
Last month, Imax’s chief executive officer said the Walt Disney Co. sequel had “one of the highest pre-sale levels we’ve ever seen” for tickets, and noted it was cleared for release in China, Imax’s biggest market in terms of 2021 revenue. While China continues to struggle with Covid, Securities Daily last week reported that more than half of the country’s cinemas have resumed operations.
Big Screens
This is a turbulent time for the film business: The pandemic shut cinemas around the globe, while at the same time streaming services sprang up that offer movies and TV shows with A-list talent and budgets, diminishing the allure of cinemas. According to Bloomberg Intelligence, year-to-date US box office receipts are a third lower than levels in 2019, the last pre-Covid year.
However, 2022’s hits emphasize why more than 80% of analysts recommend buying Imax, compared with 50% for Cinemark, and none for AMC. The top-grossing films of the year — Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Black Panther: Wakanda Forever, and Jurassic World: Dominion — are the type of big-budget titles where studios favor theaters over streaming for initial releases, and which offer the type of spectacle Imax is associated with.
“The biggest movies are going to find an outlet, and Imax is the best venue for that,” said Jim Stoeffel, a portfolio manager at Royce Investment Partners, which owns Imax in several of its funds. “Its position in the industry is pretty secure, and I’m hard pressed to think of what might end that.”
Stoeffel also touted Imax’s valuation. The stock trades for 19.3 times estimated earnings and 2.4 times forward sales, both of which are below its 10-year average multiple. It is also cheaper than Cinemark and AMC in terms of forward earnings, while the 18% revenue growth expected next year eclipses the pace anticipated for the other chains.
“We see room for Imax to grow sales at a disproportionate level, and room on the valuation side,” Stoeffel said. “If Avatar is really big, we could see that upside come to fruition.”
Tech Chart of the Day
Tesla Inc. shares sank 4.1% Tuesday, with the electric-vehicle maker’s market value briefly dropping below the half-trillion-dollar mark. The stock, at its lowest since November 2020, is down 54% this year, compared with a 27% decline for the Nasdaq 100 Index. Tesla has recently been pressured by concern over electric-vehicle demand, as well as Chief Executive Officer Elon Musk’s preoccupation with the overhaul of Twitter.
Top Tech Stories
- Apple Inc. is preparing to allow alternative app stores on its iPhones and iPads, part of a sweeping overhaul aimed at complying with strict European Union requirements coming in 2024.
- The Biden administration plans to put Yangtze Memory Technologies and more than 30 other Chinese companies on a trade blacklist that would prevent them from buying certain American components, deepening tensions between the world’s two economic superpowers.
- Dutch chip-gear giant ASML Holding NV has “given up enough” with the pre-existing restrictions on its sales to China, Chief Executive Officer Peter Wennink said.
- Amazon.com Inc. faces a $280 million lawsuit from a Vietnamese manufacturer of warehouse storage systems that alleges the e-commerce giant abruptly scaled back orders after online spending growth cooled this year, leaving the manufacturer saddled with excess production capacity and raw materials.
- Former Twitter Chief Executive Officer Jack Dorsey called recent online attacks on his former employees “dangerous” while taking the blame for controversial content decisions that the company made under his leadership.
- Meta Platforms Inc. is facing a lawsuit in Kenya’s high court accusing the company of failing Africans by amplifying hate speech and incitement to violence on Facebook and calling for about $2 billion in restitution.
- GoTo Group sold a stake in Indonesian convenience store operator Alfamart to focus on its main internet businesses and assuage investor concerns.
- Paytm shares fell after the Indian fintech announced a buyback of as much as 8.5 billion rupees ($103 million), offering little respite to a stock down 75% since listing on bourses last year.
- Food delivery unicorn Line Man Wongnai is in talks to acquire Delivery Hero SE’s Foodpanda in Thailand as it plans for a stock-market debut in the next few years, according to people familiar with the discussions.
- Elon Musk’s prediction that Tesla would have an “epic” end of year looks more off base by the day. The ebullient outlook the CEO offered during the carmaker’s last earnings call has given way to price and production cuts in China. In the US, Tesla is offering consumers something previously unthinkable: a $3,750 incentive to take delivery of certain vehicles now, rather than wait for the new year.
–With assistance from Subrat Patnaik.
(Updates to market open.)
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