Morningstar | 2019 Box Office Off to Strong Start for Imax; China Continues to Drive Growth
While Imax reported an in-line start to 2019 versus consensus, the focus for investors should be on the potential for very strong Imax box office grosses over the remainder of the year. Management increased its guidance for 2019 box office growth to low double digits from mid- to high single digits. The firm reported Imax box office grosses of $256 million in the first quarter, up 4% year over year on a tough comparison, which included Black Panther. China continues to drive growth, with box grosses up 19% in the quarter. Imax signed agreements covering 14 new theaters along with 9 upgrade signings during the quarter and ended the quarter with a backlog of 571 theaters versus 529 a year ago. There is no change to our narrow moat rating or $30 fair value estimate. Trading in 4-star territory, the stock may offer an attractive entry point to investors.Total revenue for the first quarter came in at $80 million, down 6% versus the same quarter last year. The first quarter of 2018 benefited from more sales-type theater installs, a timing-related quirk that management expects to be smoothed out over the course of this year as the firm projects a similar level of sales-type theater installations to 2018. Adjusted EBITDA margin for the quarter fell 145 basis points to 35.6%, as the lower revenue more than offset the continued benefit from the firm’s cost-control efforts.
Gross box office receipts for China continued to expand, as the firm posted its eighth quarter of growth in its second-largest-revenue country. The growth in the market for the quarter was driven in large part by Wandering Earth, the first major Chinese-produced sci-fi blockbuster. The film is the highest-grossing Imax film of all time in China, with $45 million in receipts, beating Avengers: Infinity War. We expect the success of Wandering Earth to spawn more Chinese local language blockbusters, which should drive even more viewers to Imax screens.
The current installment of the Marvel Cinematic Universe, Avengers: Endgame, has gotten off a strong start in the United States and internationally. Imax is highly leveraged to the movie, as it was shot entirely on Imax cameras and the film is on 400 Imax screens in the U.S. and 600 screens in China. The early results in China are positive, as the film delivered opening day per screen average of $23,000, the highest opening PSA in China. Imax also benefited from dynamic pricing in China, which boosted the average ticket price by 85% versus last year's Avengers film. Overall, the Avengers: Endgame set opening day Imax box office records in 38 markets. We expect the film to have a strong opening weekend and continue to post strong box office grosses over the next few weekends.
IMAX is an entertainment technology company. Co.'s businesses are: the design and manufacture of theater systems and the sale or contribution of those systems to customers under theater system arrangements; and the Digital Re-Mastering of films into the IMAX format and the exhibition of those films in the IMAX theater network. Co. is also engaged in the production and distribution of original large-format films, the provision of services in support of the IMAX theater network, the provision of post-production services for large-format films, the operation of three IMAX theaters and, from time-to-time the conversion of two-dimensional and three-dimensional Hollywood feature films.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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