Dismal box-office performance of movies like Alice Through The Looking Glass and Teenage Mutant Ninja Turtles: Out of The Shadows will hurt IMAX's top line in the second quarter of 2016. Also, the company has low expectations from the upcoming release, Independence Day: Resurgence . In contrast, hit releases like Furious 7 , Avengers 2 and Jurassic World last year had boosted IMAX's revenues significantly.
Note that IMAX's business model has been gradually shifting from equipment to box-office releases. As a result, the company is becoming increasingly dependent on the success of Hollywood films. Thus, its future performance now depends on the company's selection of movies as well as the performance on its theaters.
Also, the company lacks diversification. An expanding international presence outside the U.S. exposes IMAX to foreign currency exchange rate risks as well. The company may also face competition from Dolby cinemas, which is offering enhanced sound and picture quality. Moreover, recent survey data showed that in 2015, movie attendance in theatres reached its lowest in the past 20 years. This trend indicates growing demand for online streaming services like Netflix Inc. NFLX and Hulu.com.
However, we are impressed by IMAX's focus on the Chinese market which offers tremendous commercial potential. Also, its recent agreement to develop Virtual Reality (VR) cameras with Alphabet Inc. GOOG to create a unique 3D VR experience in theatres may give it a competitive edge over its peers. However, consumer-oriented VR headsets like Oculus Rift, manufactured by Facebook Inc's FB Oculus VR could prove to be a challenge, going ahead.
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