Can IMAX and RealD Bounce Back?

Can IMAX and RealD Bounce Back?

IMAX and RealD were some of last week's biggest losers, shedding 10% and 11% of their value, respectively.

Wall Street didn't wax kindly on IMAX. Benchmark initiated coverage of IMAX with an unflattering hold rating, followed by Cormack downgrading the stock a day later.

The end result is that the same Wall Street pros who were betting on a third-quarter profit of $0.23 a share three months ago -- whittled down to $0.10 a share when the week began -- are now perched at an average of $0.07 a share.

It's the end of the summertime blockbuster season, and analysts are starting to sour on how the premium theatrical experience enhancers fared for the quarter that ended last week. It could be worse than IMAX's small profit. Analysts are braced for yet another quarterly loss out of RealD.

Both companies were riding high a few years ago when moviegoers were open to paying a premium for their theater outings. IMAX with its supersized screens and enhanced projections systems -- and RealD outfitting multiplexes with 3-D systems -- were the toast of the entertainment market.

IMAX is still holding up well. It hit a new two-year high last month, and even last week's double-digit-percentage drop is a mere 11% below its two-year high.

RealD, on the other hand, has been a disaster. The shares have shed more than 80% of their value since peaking a little more than two years ago.

Can IMAX and RealD bounce back?
It's probably not fair to lump the two companies into the same projection room. There's a reason IMAX is still flirting with new highs and RealD is hitting all-time lows.

IMAX is still growing. Revenue climbed 17% in its latest quarter, and a backlog of more than 280 screens worldwide will continue to find it gaining leverage as movie studios spruce up versions of their potential blockbusters for IMAX's larger-than-life platform.

A night at the movies still plays well in IMAX's proprietary platform, and growth should continue. It's not a coincidence that some reviews for Gravity -- which set a new record last weekend for October debuts -- recommend folks watch the sensory treat on IMAX.

"Gravity deserves the IMAX treatment more than most films," reads a Fox News critique. "An already immersive experience is incredibly heightened by the big screen format. Check out on IMAX if possible. It will be worth the extra coin."

In short, Gravity and other films that benefit from IMAX's technology should eventually lift the company to fresh highs.

RealD won't be as lucky. It's in a bad place. It's not just the red ink that contrasts its profitability with that of IMAX. Revenue in its latest quarter slid 13%. The stock also tumbled last month after the company posted disappointing box office returns for August, weighed down by a sharp drop in international ticket sales. Analysts see revenue bouncing back next year, though profitability should continue to be elusive for at least another year after that.

It's too soon to be betting on RealD, but IMAX is ripe to shoot back into space.

Beyond the big screen
IMAX and RealD may be hoping to woo movie audiences, but there's an even bigger battle taking place once their releases make it to the smaller screen. Americans reportedly spend nearly 34 hours a week watching television! With television viewing taking up almost as much time as the average work week, the potential for profits in the space is enormous. The Motley Fool's top experts have created a new free report titled "Will Netflix Own the Future of Television?" The report not only outlines where the future of television is heading, but offers top ideas for how to profit. To get your free report, just click here!

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends IMAX. The Motley Fool owns shares of IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published