Morningstar | Imax Ends 2018 on a High Note; Wandering Earth Success Highlights the Turnaround in China
Imax reported a strong end to 2018 as the firm beat consensus projections for the top line and adjusted EBITDA. The firm reported Imax box office grosses of $237 million in the fourth quarter, down 15% year over year on a tough comp. Despite the overall decline, the China market continues to rebound, with box grosses up 9% in the quarter. Imax signed agreements covering 12 new theaters, along with two upgrade signings during the quarter, and ended the quarter with a backlog of 564 theaters versus 499 a year ago. There is no change to our narrow moat rating or $30 fair value estimate. With shares trading in 4-star territory, the stock may offer an attractive entry point to investors.Total revenue for the third quarter came in at $108 million, down 13% versus the same quarter last year. The fourth quarter of 2017 benefited from Star Wars: The Last Jedi, which played strongly on Imax screens. The firm shut down its virtual reality business in December, a move that happened faster than we expected. While we were bearish on the initiative, we believed that management was deeply invested in the VR project and are pleased to see the quick reversal. Adjusted EBITDA margin for the quarter fell by 30 basis points to 33.4%, as the lower revenue more than offset ongoing cost controls.
China finished the year at $337 million in gross box office receipts, up 16% versus 2017. The growth in China continued into 2019 as box office grosses are up 61%, driven in large part by Wandering Earth, the first major Chinese-produced sci-fi blockbuster. The film is already the highest-grossing Imax film in China with $45 million in receipts, beating Avengers: Infinity War. Wandering Earth helped the firm increased Chinese New Year box office by 40% versus 2018, which was up 75% over 2017. We expect the success of Wandering Earth to spawn more Chinese local language blockbusters, which should drive even more viewers to Imax screens.
One of the keys for the firm’s revival in China was the implementation of programming flexibility and increased use of data analytics. Previously, Imax would schedule one film for its screens within China and then be sidelined if another film grabbed attention. For the recent Chinese New Year, the firm had three films scheduled, including Wandering Earth. While Wandering Earth did not open as the number one film, the user ratings for the film were highest of the three films. As a result, Imax switched a number of screens to Wandering Earth to take advantage of the demand. The firm has expanded this flexibility into other markets like Japan, and we expect that Imax will be implementing this in every market in the near future.
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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