IMAX has benefited greatly from its bold and broad incursion into China that will ultimately make that country, rather than the U.S., its No. 1 market. But the recent financial crisis in Beijing brings the risks involved with its strategy into sharp focus.
Its shares have risen 52 percent over the past 12 months, but since the Chinese stock market crash a month ago — which came days after the company began rolling out its IMAX China initial public offering — the giant-screen goliath’s stock has dropped roughly 8 percent on Nasdaq, and its price target was lowered from $45 to $42 by influential Canaccord Genuity on Monday.
In the big picture, however, that’s not so bad considering that the Shanghai Stock Exchange and Shenzehn Composite have fallen 17 percent and 24 percent, respectively, and the Chinese government has temporarily suspended IPOs to stabilize the markets.
IMAX shares were trading at $37.70 early Wednesday, up 20 cents, and IMAX is expected to exceed or meet analysts’ projections when CEO Rich Gelfond reports second quarter earnings Thursday from the Vienna Opera House in Austria, which has been transformed into an IMAX theater for Wednesday night’s world premiere of Tom Cruise’s new Paramount thriller “Mission: Impossible – Rogue Nation” (photo below).
Throughout the Chinese upheaval, IMAX has continued its record-breaking box-office rampage that began with “Furious 7” in April and continued with summer blockbusters “Avengers: Age of Ultron” and “Jurassic World” and appears to have weathered the storm. And significantly, last weekend it reported an impressive $8.7 million haul — 12 percent of the grosses –from the opening of the Chinese blockbuster “Monster Hunt,” which led a $282 million week at the box office, the biggest in that country’s history.
In June, IMAX China partnered with China Media Capital on a $50 million fund to produce at least 10 tentpole films in Mandarin, so it is well-positioned to capitalize if Chinese movies can regularly deliver returns comparable to those of the biggest U.S. films like “Furious 7” and “Age of Ultron.”
The “Monster Hunt” returns were just as valuable as those from any major Hollywood film released in that country, according to B. Riley analyst Eric Wold, and a sign that it is the stranglehold IMAX has on the territory with its premium giant screens that matters most.
“Even though volatility in the China stock market has led to similar volatility in IMAX’s stock price here (due to the pending IMAX China IPO in Hong Kong later this summer), we continue to believe the timing and initial IPO valuation is not as important as the overall value that IMAX can generate over the coming years from its growing presence in that country,” he said.
IMAX executives, gathered Wednesday for the annual investors conference at the company’s new Playa Vista campus, also had to be cheered by the suggestion that China’s financial woes could actually trigger a surge in that country’s already booming box office, made Monday by Phil Contrino. BoxOffice.com vice president and senior analyst. That was the case in the U.S., which saw domestic box office returns flourish despite a major recession that began in 2007 and lasted more than four years.
In addition to its upcoming IPO, IMAX has more than doubled the size of its network since entering the market in 2001 and now has 239 theaters in 89 cities in China, with another 219 in backlog. The Mainland is the cornerstone of an increasingly foreign-focused strategy for IMAX (chart below), which has 950 theaters in 63 countries, with more than 400 theaters on backlog. It has about 430 theaters in the U.S., roughly 340 of which are digital.