IMAX (NASDAQ: IMAX) Stock is an Asset Light Experiential Recovery Buy

Movie theatre technology systems developer IMAX Corporation NYSE: IMAX stock is still underperforming the benchmark S&P 500 index NYSEARCA: SPY but weathering the recent bombshell decision by Disney NYSE: DIS and AT&T Warnermedia NYSE: T to simultaneously release their slate of 2021 theatrical movie releases on their respective streaming networks. This caused all theater chain stocks to collapse as they are already struggling with COVID-19 pandemic related closures and capacity restrictions, lack of foot traffic and thin to non-existent new movies. However, unlike mainstream theater chains like AMC Entertainment (NYSE: AMC) and Cinemark NYSE: CNK. IMAX differentiates itself first as a theater system technology company that enables a true “experiential” destination all together. Anyone who has been to an IMAX equipped theater can testify to the stunning visual and audio difference compared to traditional movie theater screens. It doesn’t own theaters but license its technology and systems, making it a true asset-light structure that can endure the current pandemic until COVID-19 vaccines are distributed. Prudent investors can watch for opportunistic pullback levels to scale into positions.

Q3 FY 2020 Earnings Release

On Oct. 29, 2020, IMAX reported an earnings-per-share (EPS) loss of (-$0.75) excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.30), a (-$0.45) miss. Revenues collapsed (-56.9%) year-over-year (YoY) to $37.26 million, beating analyst estimates for $29.24 million. The IMAX network in Asia is almost fully operational returning to near pre-pandemic levels. The Company has $305 million in cash and reduced monthly burn to $4 million per month, down from $10 million per month under a zero-revenue environment mentioned in the last quarter. The Company furloughed 30% of its workforce due to the delayed release of Hollywood titles which is expected to generate $1 million a month in cash savings.

Conference Call Takeaways

IMAX CEO, Rich Gelfond, noted the resurgence in Asian box office, mainly in China and Japan helped enable significant cash flow improvements. “We’re the only geographically diversified global platform for theatrical blockbuster entertainment. Our financial position gives us years of runway to manage through the current downturn and our flexible premium model makes IMAX uniquely suited to thrive as the pandemic accelerates the evolution of the theatrical business.”, stated Gelfond. He believes audiences will return to theaters as they have in Asian locations where the “virus is under control”. China has been a real success story with over 70,000 movie theaters throughout the nation. IMAX has increased its market share to 4%, up from 2.8% YoY. IMAX delivered over $66 million of box office. Gelfond pointed out that, “Japan, South Korea and Taiwan have all opened strongly with IMAX gaining market share despite the lack of major Hollywood releases.”

How IMAX Can Survive Industry Fallout

CEO Gelfond detailed how the adoption of IMAX screens to being housed almost exclusively in the most productive and profitable multiplexes. The Company can survive unscathed despite the potential for a deep industry contraction. Gelfond bluntly points out, “In other words, approximately 3,500 North American mid-to-low performing multiplexes out of 5,400 could disappear overnight, we believe that it would have no material impact on our business. The approximately $375 million in domestic box office we produced in a typical year is what we should produce, even if the industry shrinks.” He went on to explain how the Company can gain market share during contraction even in cases of bankruptcy, the Company is protected under master lease agreements. Since theater partners are given exclusive “geographical zones”, any partner that breaks the master lease contract can be replaced by alternative operators as the Company has the right to move the equipment elsewhere. This is the benefit of an asset light model.

The IMAX Experience

While the threat of movie streaming can be detrimental to theater partners, IMAX films are a whole different experience. The Company derives revenues by licensing the technology when films are produced in IMAX quality as well as from master leases with theater partners. IMAX films are recorded in 70mm, 15-performation and at 24-frames per second which is 10X the size of conventional 35mm film seen in conventional theaters. Three IMAX cameras take simultaneous angular shots during filming generating 12K lines of horizontal. Two IMAX projectors run simultaneously to provide a “perfect” image balancing warmth and sharpness. IMAX screens are up to six times larger than regular screens, with 40% more image content and 10X sharpness of conventional film resulting in an experiential event for filmgoers at a premium price. No matter how good your home theater is, it doesn’t compare to IMAX.

Experiential Can’t Be Replicated at Home

The Company has the financial stability to weather the pandemic especially as COVID vaccinations are planned to rollout through Q2 2021. Both Disney and Warnermedia have announced plans to simultaneously release 2021 movies both on streaming and in theaters. Disney+ still plans to charge a pay-per-view fee per same-day theatrical release for Disney+ subscribers while HBO Max subscribers pay no additional fees to access the movies. The video streaming of theatrical releases will definitely impact traffic for regular movie theaters, but IMAX movies are a premium experience that can’t be replicated at home. Prudent investors looking for an entertainment recovery play should watch for opportunistic pullbacks in the shares to gain exposure.

 IMAX Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames enables a broader view of the playing field. The monthly rifle chart is in a make or break as it attempts to reverse the downtrend. The monthly rifle chart formed a market structure low (MSL) buy trigger above $13.55. The monthly stochastic has a mini pup that is powering through the 15-period moving average (MA) at 14.67 with a rising 5-period MA support at $13.81 as it bumps into a double-top at the $15.54 Fibonacci (fib) level. The weekly rifle chart coiled off the $10.64 fib to rocket on a full stochastic oscillation surge that gapped it over the monthly MSL trigger. It’s prudent to wait for opportunistic pullback levels sit at the $14.60 monthly 15-period MA, $13.55 monthly MSL/fib, $12.08 fib and the $10.64 fib. The upside trajectories range from the $18.61 fib up to the $25.64 fib.