IMAX's Q4 Report: 3 Lessons for AMC and Cinemark Investors

Larger-than-life cinema technologist IMAX (NYSE: IMAX) posted its fourth-quarter results on Wednesday. The report drove IMAX shares as much as 10.5% higher in Wednesday's after-hours trading, and it painted a vivid picture of the state of the industry. Hence, investors in other leaders of the cinema sector, such as AMC Entertainment Holdings (NYSE: AMC) and Cinemark Holdings (NYSE: CNK), should take a peek at IMAX's report in preparation for their own upcoming business updates.

These are the three most important movie industry insights I found in IMAX's fourth quarter.

1. In the COVID-19 era, it's all about the blockbusters

IMAX crushed Wall Street's estimates in the fourth quarter on 2021. The average analyst had been looking for earnings near $0.13 per share, on revenue in the neighborhood of $87 million. Instead, the company delivered $0.31 of earnings per share and top-line sales of $109 million. Total IMAX box-office receipts during the quarter landed at $278 million, a 15% increase from the pre-COVID fourth quarter of 2019 and 146% over the stunted year-end period of 2020.

One smash hit drove the lion's share of the box-office sales. Spider-Man: No Way Home collected $78 million in global ticket sales for IMAX. That works out to 5.7% of the film's total box-office receipts in the last three weeks of 2021. That's comparable to the lifetime IMAX ticket share for the record-setting superhero epic, Avengers: Endgame.

The latest entry in the Spider-Man franchise kept theaters packed for a couple of weeks -- a rare feat in this coronavirus-dampened era of Hollywood history. For example, the top 10 titles combined for a domestic box office take of $106 million in last week's extra-long President's Day weekend. In 2019, President's Day ticket sales clocked in at the lowest reading in 15 years. But that was still a $127 million take for the top 10 films, far ahead of this year's result.

Blockbuster hits have always been important for movie studios and cinema chains, but the global health crisis amplified the importance of these game-changing winners. What goes for IMAX also applies to the more traditional movie venues. Expect Cinemark to highlight the business impact of Spider-Man in Friday's earnings report, followed by AMC's take on that hit, come March 1.

Image source: Getty Images.

2. Sustainable growth can be found overseas

IMAX has grown into a global distribution network with more than 1,600 commercial theaters across 87 nations. International theaters provided 51% of the fourth quarter's box-office tally.

The strong overseas contribution was no accident. The company offers plenty of local productions on its extra-big screens around the world. Local-language titles accounted for $182 million of IMAX ticket sales in 2021, up from $133 million in 2019.

And it's not low-budget fare of questionable quality, either. The Chinese megahit The Battle at Lake Changjin was filmed with IMAX cameras and produced with this supersized format in mind. The title has grossed $902 million since its release in November 2021.

IMAX wants more of this action and is investing in local productions. You'll find IMAX cameras on the sets of expected blockbusters in the key markets of China and Japan, and the company is now expanding its production know-how into promising markets such as India, France, and South Korea.

In particular, CEO Rich Gelfond expects a meaningful contribution from IMAX's Indian business in 2022. In this market, local movie producers pumped the brakes on their most promising films in 2020 and 2021, stacking the deck with lots of potential blockbusters for this summer.

AMC and Cinemark can't quite match IMAX's affinity for overseas operations. AMC is a leading theater name in Europe, thanks to a series of local buyouts over the years, but the company isn't reaching Chinese and Japanese consumers at all, and CEO Adam Aaron showed no interest in international expansion in November's report. Cinemark is absent from both Asia and Europe, focusing on South and Central America instead; that company's international sales accounted for just 13% of revenue in November's third-quarter report.

AMC and Cinemark might want to follow IMAX's lead in exploring some of the most promising growth markets on the planet. I don't expect them to do it anytime soon, but you never know. Keep an eye out for international expansion talk in those upcoming earnings reports.

3. Coming soon to a theater near you: alternative content

Gelfond is excited about alternative content sources, supplementing the usual cinema fare with live IMAX presentations of music, sports, and classical theater productions.

The company is partnering up with some entertainment industry heavyweights to explore this idea. Let me give you a few examples from the fourth-quarter period:

  • A one-night showing of Joel Coen's Macbeth production was streamed into 17 IMAX theaters worldwide in partnership with Apple (NASDAQ: AAPL).
  • A collaboration with Walt Disney (NYSE: DIS) brought a live Q&A session with master storyteller Steven Spielberg to 10 IMAX locations, linked to the premiere of West Side Story.
  • And when rap superstars Kanye West and Drake brought a special event to Amazon (NASDAQ: AMZN) Prime and Amazon Music for one night only, the creative team used IMAX cameras and delivered the event to 35 supersized theaters in North America. Those tickets sold out in many locations, even though the live broadcast was available for free to Amazon Prime subscribers.

On this point, the old-school theater chains are putting in some serious work. Fathom Events (a joint venture between AMC, Cinemark, and Regal Cinemas -- part of Cineworld Group) provides plenty of live events in AMC and Cinemark multiplexes, including Q&A sessions with movie stars and live rock concerts. The theater chains also have live broadcast deals with boxing promoters and the professional wrestling leagues. AMC also offers exclusive NFL games to members of its AMC Stubs loyalty program.

This is a legitimate business plan for the long haul. Alternative content can help theaters through challenging periods for Hollywood movies.

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