RealD Exceeds IPO Expectations

(Reuters) – California-based RealD Inc (RLD.N), whose 3D technology was used to help make the movie “Avatar” the highest grossing film ever at box offices, on Thursday raised 33 percent more than it had earlier expected from an initial public offering, as it priced an IPO of 12.5 million shares at $16 each.

With shares to begin trading on the New York Stock Exchange on Friday, the company is raising $200 million. It had originally planned to sell 10.75 million shares for $13 to $15 each, an underwriter said.

“It’s pretty self-evident that there was tremendous demand,” said BTIG analyst Richard Greenfield.

RealD said that underwriters will have a 30-day option to buy up to 1.88 million shares at the IPO price.

Analysts say 3D technology could be key to reviving box office sales. The industry got a kick-start when “Avatar” became the highest-grossing movie of all time and Hollywood is now rushing to meet demand for more 3D ventures with films, including “Toy Story 3,” while theaters are rapidly upgrading their venues.

The roll-out of 3D in theaters is dependent on chains converting their screens to digital projection. So far 5,300 U.S. screens have been converted to digital and upgrading the rest of the nation’s 35,000 screens could cost $2.6 billion, said the National Association of Theater Owners.

Globally, about 10,000 movie screens are 3D enabled and more than 5,000 of those carry RealD technology.

RealD generated $189 million in revenue in the 12 months ended March 26, 2010, the company said in a regulatory filing. The company collects a license fee from theater owners, and is dependent on Hollywood continuing to churn out 3D films.

“3D is one of the hottest topics in Hollywood right now,” said Larry Gerbrandt, principal with Media Valuation Partners.

“If anything, we’re seeing an acceleration in the number of 3D releases,” he said. “The biggest concern (for RealD) is if a competitor enters the marketplace, but these guys seem to have good momentum.”

RealD is the No. 1 installer of 3D technology in theaters, and its rivals include audio equipment maker Dolby Laboratories Inc (DLB.N), the California-based private firm MasterImage 3D and European company X6D Limited.

By the end of this year, 22 major films will have been released in 3D and in 2011 there will be at least 24, said tracking firm Box Office.

James Cameron’s 3D film “Avatar,” which became the highest grossing film ever by making $2.7 billion at worldwide box offices after its December 2009 release, made a forceful case for audience’s desire to see movies in the third dimension.

Of the $720 million that “Avatar” earned at U.S. and Canada box offices, 82 percent came from 3D screenings.

For the 14 movies released in 3D last year, 65 percent of their box office revenue came from 3D screenings, Box Office said.

But some analysts see a slackening in audience appetite for 3D. “Toy Story 3” has only made 56 percent of its box office take from 3D screenings since it came out on June 18.

RealD has vaulted to success by offering theater owners a free upgrade to 3D, and then charging them a license fee. That fee had been 75 cents per attendee, but it has since fallen to between 40 cents and 50 cents, BTIG said in a report.

Hollywood studios are subsidizing the cost of RealD’s glasses at theaters, but BTIG said it expects Hollywood to shift that burden to RealD and the theater owners.

Due in part to the glasses issue, BTIG has lowered its estimates for RealD earnings in fiscal years 2013 to 2015.

BTIG now expects RealD to generate $41.4 million in earnings before interest, taxes, depreciation and amortization in fiscal year 2011, and $143.4 million in fiscal 2015.

Besides theaters, RealD’s technology has been used in TVs, laptops, for piloting the Mars Rover, heads-up displays for military jets and robotic medical procedures.

The underwriters were led by JPMorgan and Piper Jaffray. The shares are expected to begin trading on the New York Stock Exchange on Friday under the symbol “RLD.” (Reporting by Clare Baldwin and Alex Dobuzinkis; Editing by Bernard Orr)

peHUB Note: Shareholders include Shamrock Capital Growth Fund, with a 14.8% pre-IPO stake.