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Coverage Initiation: RealD Inc.
RealD Inc. (RLD) recently made its debut in The Value Line Investment Survey. The global licensor of 3D technologies provides its RealD Cinema Systems and other content to motion picture exhibitors. It also licenses various 3D technologies to consumer electronics manufacturers. The company generates revenue through licensing fees paid by customers.
RealD was founded in 2003 by Michael V. Lewis and Joshua Greer, and later incorporated in Delaware as RealD Inc. In July 2010, the company went public by issuing six million shares of common stock at $16.00 per share.
Since its inception, RealD has become the domestic leader in 3D technology, controlling over 80% of the United States market. We believe the market for 3D technologies is only starting to gain speed, and will likely ramp up further in coming periods, benefiting the company considerably. In fact, 3D receipts are rapidly increasing as a percentage of total box office revenues, a trend we expect to continue.
Many exhibitors have already rolled out 3D screens across as much as 50% of their auditoriums, and RealD is at the top of the list when it comes to selecting a 3D partner.
The company’s technology is already deployed across more than 15,000 theaters around the globe, 8,600 of which are in the United States, and RealD will likely continue to add screens over the next several years as it looks to meet the growing demand for 3D technology in the market.
As the leader in the domestic arena, RealD is well positioned to capitalize on the increasing trend in 3D abroad, as well. The company currently has approximately 6,500 screens deployed outside the United States, and is now looking to further expand its foreign presence and establish itself as a major player on the international stage.
And, although RealD has struggled to post a profit since its initial public offering, the company should rebound nicely over the next several years as high costs associated with the initial installation of its screens are fully incurred and 3D films begin generating more revenue. In fact, we expect RealD to post a profit in fiscal 2011 (year ends March 25, 2012) followed by strong top- and bottom-line advances over the next 3 to 5 years.
All told, RealD is very well positioned in its industry. With the frontrunner position in the United States and surging operations abroad, we believe the company is poised for the long haul. RealD should be able to drive strong gains down the line, especially given the potential for growth within the market for 3D films, giving this stock considerable room to run.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.